Alan Farley through The 3 Sectors to Trade During Flat Markets articles argues that in the recent world of entrepreneurs, the people involved in trades, the so-called traders are directing their capital in order to take advantage and obtain sustainable profits by paying attention to the level of prices. The price of goods on the markets may rise or fall, but as an entrepreneur or an economist with a high sense of trade, you must know when to get involved in that really attractive game also known as trade market. Somehow, it is believed that trends are the ones that obtain you the profit and encouraging the traders to prioritize trade movements and policies and to lower the volatility - lower volatility meaning more powerful and protective social security.
Firstly, it is needed an upgrade on the fact that the entire article is composed only of comments on the flat market, economic term required to be defined, using the financial dictionary, as a market in neither an uptrend nor a downtrend. The securities of the flat markets are constant in price, at least relatively for a certain period of time. Sometimes, the flat market is further associated with low trading volume, being also called as a sideways market that is directed toward one side.
The author sustains that the trend-following strategies taken in the flat markets imply suffering from adverse opportunity-cost, explaining that the trend setters consume limited resources, action that fails in warning signals needed to trigger timely exits.
Alan Farley draws the attention to the fact that a divergent performance on different interests across economic sectors could be a solution and through these manners certain groups would outperform while the broad equity market goes flat. By identifying these sectors in a new trading range and working on some different policies that cold develop them, could reduce the frustration while providing some other trading opportunities needed to obtain a period of sustained increases in the prices of stocks, bonds or indexes, also a rapid selling of securities such as stocks or commodities.
Furthermore, besides choosing the right trading sectors it is important to shorten the holding periods along the flat market as the price actions outline some different characteristics than in actively trending markets. As stated, trade volume has a tendency of dropping sharply as the public investors prefer to work on the sidelines, giving permission to act to some trading systems that utilize very advanced mathematical models for making transaction decisions in the financial markets, so-called algorithmic trading programs that would flow backwards and continuously the capital while working within the limits of the trading range.
These algorithmic trading programs are thought to be digital predators that force bad entries on the market, especially above support and below resistance, those right places where trend-following strategies set off the entry signals. With a shorter holding period and working within those constraints of the trading range, the vulnerability of these programs will lower. A conscientious stock and a precise selection of the sector will lower more the threat level as the algorithms tend to aim attention to standard groups that appeal to high volume through the market circumstances.
Developing and upgrading a 60-minute report on the daily price patterns for holding periods or just several days, without taking into consideration weekly or monthly charts, could be a good start. It is suggested that leading sectors along the flat market, tend to lose momentum as soon as a new uptrend or downtrend have authority over the extensive market. In order to understand these notions, the term momentum represents the rate of acceleration of a security's price or volume. According to the online domain Investopedia, the idea of momentum in securities is that their price is more likely to keep moving in the same direction than to change direction and in technical analysis, momentum is considered to identify price trend lines. Every word of this prove out for the reason that capital applied to these whereabouts has shelf life, intending to bring about small gains until considerable trending opportunities occur.
Alan Farley presents as the best three sectors in flat markets: firstly, the utilities, secondly defense stocks and last but not least, footwear.
It seems that utilities, sometimes considered sleepy stocks,
during these flat market periods tend to get bought contentiously because the
remaining players turn to the income return on an investment that refers to the interest or the dividends received from a
security, being usually expressed annually as a percentage based on the
investment's cost or its current market value.
Furthermore, during these periods entering trends that will generate rapid
price rate of change, also a broad-based utility fund will take advantage of
this tendency. A broad-based utility fund will take advantage of this tendency,
but systematic forms of analysis completed to conclude that a particular stock will
make a good investment will do an even better job.
Farley is giving as the example of SPDR Select Sector Utility Exchange-Traded Fund that offers a highly liquidbroad-based fund play, trading more than 12 million shares daily on average. High liquidity meaning the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's price. This is a passive fund with an exceptionally low expense ratio at 15% that tracks Utilities Select Sector Index in a modified market capitalization strategy. It seems that the fund held 29 positions as of August 31, 2015.
There may also be a risk of no components of consecutively higher swing highs indicates that the given asset is in an uptrendwhen the sector is emerging from a downtrend.
Secondly, in terms of peace when political forces across the planet aren’t attracting the firepower of army institutions, the defense stocks are sold aggressively and they tend to do well in flat markets because a large share of annual comes from government contracts that prove reliability over time.
For instance, three defense stocks have shown particularly strong performance in flat markets in recent years: Lockheed Martin, Raytheon and Rockwell Collins. Rockwell shows the lowestinvested capitalof the group, at $11.7-billion while LMT shows the highest at $67.9-billion. All carry tighton the amount by which the ask price exceeds the bid through nearly all market environments, making them attractive choices for active traders seeking opportune profits.
Last but not least, footwear stocks additionally tend to be bright along flat markets. In line with the view of Farley, footwearstocks also tend to shine in flat markets, along with a narrow selection of othercategories of stocks that rely heavily on the business cycle. These issues don’t pay high dividends, but annual sales show market strength in all economic conditions because everyone needs to buy shoes on a regular basis, even if for functionality or for fashion. Let’s take for granted the leader sector that has remained the same through several market cycles: Nike, Adidas, New Balance etc.
To conclude, within a securities market in which there has been no tendency either to rise or to fall, having shorten holding periods during flat market times and focusing on the top three sectors that could always outperform the market economy may really have to chance to generate profit for the traders and for the governments. Utility, defense and footwear stocks will never fail in offering the expectation during times of flat market, and investing the capital in these trends may be the greatest advice. First is about the utilities as the remaining players of the market turn to the income return on an investment that refers to the interest or the dividends received from a security, being usually expressed annually as a percentage based on the investment's cost or its current market value. Secondly, the defense stockstend to do well in flat markets proving reliability as a large share of annual profit comes from government and thirdly, the footwear stock will never fail to work because everyone needs to buy shoes.
Nevertheless, I personally fully agree on the opinion of Alan Farley within the article The 3 Sectors To Trade During Flat Markets and I think that focusing on shorten holding periods in flat markets and directing capital on the top three sectors will exceed during these times: utility, defense and footwear stocks. In addition, momentum traders should reduce frequency and size in flat markets while seeking out story stocks that continue to trend higher or lower, despite adverse conditions. Also, 60-minute charts offer a second momentum strategy, grinding out smaller-scale rallies and sell-offs within broader trading ranges. Not to forget that trends must be paid attention because they are those obtaining the profit and encouraging the traders to prioritize trade movements and policies and to lower the volatility.