when a security s price goes up and down by small increments over time it is said to be moving sideways when a price moves sideways the underlying security is thus in a neutral trend moving neither up nor down over time a neutral trend can occur after a sustained increase or decrease in price when the price begins hitting levels of resistance or support and there is a period of consolidation these trends can continue for days weeks or even months 
traders can take advantage of neutral trends through appropriate strategies that often involve the use of short selling or derivatives contracts if somebody longs shares on the weighted components of an index or index etf and then goes short on that index or etf they have created a position that is neutral since when the price of the index goes up so too will the prices of the components in an offsetting manner an investor may believe that there are certain structural inefficiencies between the basket of stocks that make up the index and the index itself that can be taken advantage of for instance in one neutral strategy called a dispersion trade a trader can bet that half of the index components will rise in a trading day and the other half drop but the index itself does not move much as a result a neutral trading strategy can also be employed by simultaneously taking a long position in one company and a short position in a second company that is very similar or a direct competitor in order to take advantage of perceived mispricing so if coca cola and pepsico have a high correlation in the movements of their respective stock prices and then pepsi s stock suddenly surges while coke does not a trader may short pepsi and go long coca cola betting that their existing price spread relationship will be restored this is known as a pairs trade long short market neutral hedge funds make use of these strategies and often use as their benchmark the risk free rate of return because they do not worry about the direction of the market neutral trading strategiesneutral strategies can be constructed using derivatives such as options contracts these strategies can be complicated and are unsuitable for inexperienced investors advantages of disadvantages of neutral strategiespotentially profiting off stocks and other financial instruments that have remained relatively stable in price gives options investors more opportunities because many financial instruments go through long periods of staying neutral options traders have more chances for generating returns in addition options investors may profit off three outcomes not just one increasing their odds of earning profits rewards aren t however limitless as the maximum amount of potential profit is fixed upon the trade s execution in contrast options traders utilizing a strictly controlled return on investment roi mandate can calculate maximum profit from the start making income more predictable however because all strategies require two or more transactions the investor pays more in commissions 