A Trading Strategy for a Flat Market

The possibility exists that the stock market in March will go neither up nor down, needless to say.
It's also possible that it will go nowhere, trading in a narrow range and ending the month at more or less the same level at which it began.

Well, duh. Of course. So what?

But it is surprising how few of us devise our trading strategies with that possibility in mind. Ask a group of investment gurus to offer a trading strategy for March, for example, and almost all will base their recommendations on a bold forecast of a big up or down move for the month.

Whether it's human nature or not to overlook sideways markets, they are a fact of life. And, at least according to some analysts, we may very well be entering into such a period now --late in a bear market but not yet ready to begin a brand new bull market.

Perhaps the most spectacular example of sideways action in U.S. stock market history came between 1966 and 1982. The Dow Jones Industrial Average first rose above the 1,000 mark in January 1966, and yet still traded at that same level in the latter part of 1982 -- more than 16 years later.

In, and out, like a lamb?

=

This goes back to the article that there are 20-year cycles that are quite noticeable when looking at stockmarkets from, say, 1900. There are 20 years of growth followed by 20 years of going nowhere. From a long-range perspective those lean years just look dull and flat. But living within one of those periods, as we are probably doing now, those bear market lows look very painful and depressing.

All the talk of bottoms becomes even more meaningless as any real bottom could well be followed by a few years of sideways movements. Having a good strategy for sideways markets is the best advice at the moment. The same strategy will also catch the next bull market - when it happens - but is not wholly dependent upon it.

This is why a buy-and-hold strategy only makes sense if your time horizon is at least 20 years, otherwise it is an easy but costly way to invest.