Strategy “Flat Trading”

In our review, we will consider the feasibility of using the “Flat Trading” strategy in the crypto market.

Flat (English Flat - flat, straight) is the movement of the price of an asset in a sideways range, as a result of leveling and stabilization, for an indefinite time, of supply and demand on the market for a given financial instrument. In other words, a flat is a consolidation of price in the time intervals between the influence of impulses.

It is very simple to determine the state of a flat in the market. If you draw trend lines along the highs and lows of the price chart, they will form horizontal parallel straight lines. 

This is a special case of flat. A situation is possible when consolidation occurs obliquely or in a narrowing/expanding range.

You can also determine consolidation in the market using technical analysis indicators:

- Williams lines intertwine during the period of consolidation;

- Moving averages - are located horizontally;

- Stochastic - is in the neutral zone for a long time.

It is generally accepted that in traditional markets an asset is in a state of flat seventy percent of the time. Here is an example demonstrating the frequency and duration of sideways movement on the EUR/USD currency pair

In order not to waste time waiting to enter the market, when tracking impulse, the “Flat Trading” strategy is used. The essence of the strategy is simple and consists of the following: at an early stage, the boundaries of the emerging flat are determined, and taking into account the “predictability” of the movement, (from the upper limit to the lower and from the lower to the upper) transactions are concluded to buy and sell an asset from the boundaries of the range, in accordance with the basic principle of trading “Bought cheaper, sold more expensive.” 

Despite its apparent simplicity, flat trading requires the skill of a scalper. Quite often, entry points from the border of the range very quickly shift to the middle of the corridor, and opening positions in this case is no longer profitable. It is necessary to strictly follow the chosen strategy and not chase maximum profit at extremes.  

To trade profitably inside a sideways range, the following conditions must be met:

- The consolidation range must be wide enough.. So that the profit from a transaction within the range significantly exceeds the spread and exchange commissions. 

- The range should not be expanding. Since it is impossible to clearly define the boundaries of expansion, and it is not clear when to close a position.

- The range should not be narrowing. Each subsequent trade will bring you less and less income, and the risk of a breakout of the range level in the opposite direction increases from trade to trade. In fact, it is customary to track a narrowing range, as a rule, with the goal of opening a breakout position. 

Considering that the volatility in the cryptocurrency market is quite high, a flat here takes much less time than in traditional markets. Therefore, the use of this strategy is justified only when consolidation has dragged on for a long time.

Nevertheless, you need to understand that the impulse will sooner or later interrupt the flat. But before this happens, you can always try to earn extra money using the temporary lull in the crypto market.