Either-Way Market

What Is an Either-Way Market?

An either-way market refers to situations where there appears to be a roughly equal chance for a market to move up as there is for the market to move down. Either-way markets are temporary situations and can refer to the market as a whole or individual investments such as stocks.

During these types of market conditions, traders will look for tools or trading strategies that will help them discern which way the either-way market will eventually head. These tools can help traders position themselves in advance of the move with the ultimate goal of making a profitable trade. Notably, technical patterns often can help traders and investors handicap which way the market may move next.

Understanding an Either-Way Market

An either-way market generally describes sideways price action or consolidation. Say shares of a publicly traded company, which had been moving generally upward for five years, now move sideways for roughly eight months. This sideways movement creates what appears to be an either-way market, in which shares can break out either to the upside or downside.

Generally, the longer the period of consolidation, the more movement potential technical analysts see once the stock eventually breaks out from the sideways pattern. Some refer to this sideways movement as a “coiled spring.” When the same type of pattern appears for the entire market, as opposed to an individual stock, it’s known as a coiled market.

Elliott Wave Analysis

Many traders use Elliott Wave Theory analysis and other technical indicators to help gauge the likelihood an either-way market breaks to the upside or downside. Developed by Ralph Nelson Elliott in the late 1930s, the Elliott Wave Theory divides repetitive patterns in the market into smaller patterns called waves. By analyzing the wave count, Elliott concluded a trader could accurately predict the movement of the stock market.

In the Elliott Wave Theory, the "5-3 move" refers to a pattern of five waves that move in the direction of the main trend followed by three corrective waves.

Triangles Help Handicap an Either-Way Market

Similarly, technical analysts often look for so-called triangle consolidation patterns, in which a stock’s trading range becomes narrower and narrower over time as the stock’s pattern generally moves sideways. The triangle’s trading range eventually becomes so narrow that the stock must either break out or break down.

Triangles generally are considered continuation patterns because they typically result in a return to the prevailing trend. For example, a stock that previously was in an uptrend tends to break out from a triangle pattern.

Most notably, a symmetrical triangle is when the series of market lows narrows at roughly the same rate as market highs. Drawing upper and lower trendlines results in a symmetrical shape, with the meeting point of those trendlines setting a timetable for an eventual breakout or breakdown. Traders essentially “flip” the triangle from its widest point to determine a price target to the upside or downside, depending on the direction of the market’s previous prevailing trend.

For example, say a stock in an uptrend began to form a triangle pattern over several months, with the high of the triangle at $12 a share, and the low of the pattern at $8 a share. The trading range continues to narrow toward $10 a share before it finally breaks to the upside. The price target utilizing this pattern would be $14, or the width of the widest point in the triangle from the breakout point.