Either-way Market: Definition
An either-way market refers to market conditions where analysts believe there is an almost equal chance for prices to break out and move higher or break down and move lower. An either-way market usually follows a one-way market, where price action moves higher or lower for an extended period. It can either refer to a single equity or the entire market.
Most of the time, an either-way market is temporary, but they can last longer, depending on economic, financial, and monetary conditions. Analysts and traders have various tools to spot an either-way market and gauge underlying forces to deploy appropriate strategies.
An either-way market may move sideways without clear bullish or bearish trends, but this does not mean traders and investors should remain on the sidelines. There are plenty of short-term and long-term opportunities in an either-way market.
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Either-way Market Characteristics
- An either-way market usually exists in equity trading
- During an either-way market, a roughly 50% chance exists for prices to move higher or lower
- The longer an either-way market prevails, the higher the likelihood of a strong breakout and higher prices, or a breakdown and lower prices. This prolonged situation is known as a coiled market
- Traders can use chart patterns to identify an either-way market
- Technical indicators are less reliable during an either-way market for long-term predictions but can provide an accurate signal for short-term trading
- Long-term investors can use an either-way market to make short-term counter-position trades to boost profitability
How to Spot an Either-Way Market
Chart patterns can offer highly accurate confirmations of the existence of an either-way market. One of the most easily identifiable chart patterns is a straightforward rectangular pattern with well-established and triple-confirmed support and resistance levels. Price action will move in waves within this pattern, consolidating previous gains or losses while it awaits a catalyst for either a breakout or a breakdown.
Spotting an either-way market is simple, as visual confirmation on a daily chart can reveal this market condition. Since there is an equal chance for price action to break out and enter a rally, or break down for a sell-off, the challenge is to analyze the direction the either-way market will take correctly. Chart patterns and technical indicators will help.
Two Chart Patterns that Can Be Used to Trade an Either-way Market
1. Elliot Wave Analysis
Ralph Nelson Elliott developed his Elliot Wave Analysis in the 1930s, which stood the test of time. Rather than focusing on the long-term trend as a single entity, the Elliot Wave Analysis breaks it down into smaller price action moves called waves. It uses a 5-3 move, referring to five moves in the trend direction, interrupted by three smaller countertrend moves. Therefore, traders can analyze the waves and use the 5-3 pattern to gauge which direction an either-way market will move.
2. Triangle patterns:
Triangle consolidation patterns can reveal an increase or decrease in bullish and bearish momentum. The symmetrical triangle pattern is one of the more reliable chart patterns in an either-way market.
Please Note:
- Traders must identify an either-way market on longer-term time frames and use chart patterns and technical indicators on shorter time frames to identify if price action is more likely to break out or break down
- A prolonged either-way market changes into a coiled market, which can yield more significant price action moves following a breakout or breakdown
- An either-way market in individual stocks is also known as a coiled spring
Conclusion
An either-way market refers to a market condition with equal chances for prices to move higher or lower. It represents a consolidation period that can create conditions for massive breakouts and breakdowns. Analysts and traders can use chart patterns to identify an either-way market and chart patterns and technical analysis to position portfolios in a profitable direction.
FAQs
What is an either-way stock market?
An either-way market in stocks is a market condition with an approximately equal chance for the next move to be higher or lower. It is a standoff between bulls and bears, a rare market equilibrium with opposing forces pushing and pulling without a decisive upper hand for either side.
What is a one-way market?
A one-way market is the opposite of an either-way market, where prices move in one direction for an extended period. While it is positive for bulls when markets move higher and, likewise, for bears when markets move lower, a one-way market can lead to excessive bullishness and overbought conditions or bearishness and oversold conditions.
What else is a sideways market called?
An either-way market is another term for a sideways market, as price action moves in a narrow range amid the absence of decisive buying or selling pressure. Another term for it is a ranging or range-bound market if the upper and lower ranges are well-defined and within a reasonable distance.