Consolidation typically occurs when price action has an impulsive move.
When the price is in a sideways range ie; not really going up or down, this is consolidation.
Most newcomers to the market fail to recognise consolidation and often grow impatient or fearful, leading to them exiting or entering on a whim.
When the breakout finally comes, they're unprepared and too emotional to understand the breakout pattern.
Learn how to identify consolidation and plan ahead.
Consolidation typically occurs when price action has an impulsive move.
When the price is in a sideways range ie; not really going up or down, this is consolidation.
Most newcomers to the market fail to recognise consolidation and often grow impatient or fearful, leading to them exiting or entering on a whim.
When the breakout finally comes, they're unprepared and too emotional to understand the breakout pattern.
Learn how to identify consolidation and plan ahead.
Key Points of the Lesson
UTILITY
Consolidation is range-bound price action after an impulse ⇒ use with market context to decipher the next move.
Three types of consolidation ⇒ can offer clues.
Consider counter-argument to textbook definition ⇒ think outside the box.
IMPLEMENTATION
Textbook:
“Consolidation above support is bearish”
“Consolidation below resistance is bullish”
Definition: Price moving in an extended sideways range
Generally a neutral pattern ⇒ can be accumulation, distribution, re-accumulation, etc.
THREE TYPES OF CONSOLIDATION
Bull flag / bear flag consolidation⇒ most bullish/bearish form after an impulse.
Sideways consolidation⇒ neutral, favours continuation of the trend.
Upwards sloping / downwards sloping ⇒ generally unhealthy, can lead to a trend reversal.
THEORETICAL EXAMPLE
PRACTICAL EXAMPLE
TIPS & TRICKS
Consolidation under resistance ⇒ Could also be a low-risk short trade under certain market situations with a small invalidation.
Consolidation above support ⇒ Could also be a low-risk long trade under certain market situations with a small invalidation.
Deciphering consolidation:
Zoom out, check the macro trend
view support / resistance as a zone, not a level.
Search for confluence.
TAKE HOME MESSAGE
Consolidation is range-bound price action after an impulse.
The three types can help decipher the next impulse.
Market context and confluence are needed.