Monday, June 2, 2008

Making money in a sideways market

The markets are said to be trending sideways most of the time. During this time they can be quite volatile. It is for that reason that many traders have come to loath them. However some traders actually prefer sideways trending markets over trending markets.

There are a number of ways to take advantage of this type of market. One of these ways is through the use of a trading strategy called an iron condor. During an iron condor you do not care if the stock goes up or down. In fact you want the stock to stay within its normal price range.

That is because it is actually made up of 2 different spreads the bull put and bear call.

A bull put spread makes it possible to make money as long as the stock stays above a certain level. A bear call spread makes it possible to make money as long as a stock stays below a certain level. Together they make an iron condor spread. This can be profitable as long as a stock stays within a given area.

For example say a stock has been bouncing between $100 and $120 for months. Some traders who are trying to trade a direction have been having a hard time. You however see this as an opportunity.

With this strategy you can make the $90/$95 bull put and the $130/$125 bear call spread. That gives you $1 profit as long as it stays between $95 and $125. You would also have to risk a maximum of $4 if the stock breaks out of its trend.

Because they have a terrible risk to reward ratio you want to be right a lot more then you are wrong. The good news about that is that iron condors are already high probability trades. They do not ask for the stock to do any that it already does.

To see an example of an iron condor spread visit

To learn more about trading in the stock market visit

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