Price Patterns - A Sideways Pattern Can be Profitable

When a stock price repeatedly moves up and down with approximately the same magnitude, it forms a sideways price pattern. During the sideways movement no sustained upside or downside move occurs. But astute traders can make money on the short-term up and down price moves.

The six-month sideways pattern for Google (GOOG) that is preceded and followed by well defined upsides includes sizeable price fluctuations that provide opportunities to make money.

Percent Returns for All Buy and Sell Combinations

The percent returns chart shows the gains and losses for the daily buy and sell combinations from October 22, 2004 through April 21, 2005.

The green areas represent the profitable returns and the red areas represent the unprofitable returns. Of the 7,750 buy and sell combinations (trades) 4,564 (58.89%) made money and 3,186 (41.11%) did not. Even though there were no sustained upsides during the sideways pattern, winners were able to beat out losers nearly three to two.

Winners and Losers Map

The winners and losers map has no relief so it simply shows the profitable trades in green and the unprofitable trades in red. The map for the GOOG sideways formation shows a pattern of alternating red and green areas suggesting that no prolonged upsides or downsides are present. However, buying at low prices early in the sideways pattern yielded many winners as seen by the extensive green area at the top of the map. The large red areas in the right part of the map resulted from buying at relative high prices midway through the sideways pattern.