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Consolidation Trading














Chart = Consolidation In A Triangle


Generally when traders refer to consolidation trading, they only think of the horizontal channel consolidation. However, there are various types of consolidations. Really, one can quickly improve the consolidation trading as soon as one begins to make use of various types of consolidation patterns.

Types Of Consolidation Trading

1/ Consolidation During A Rising Channel
That occurs when a financial instrument is oscillating around a bullish dynamic trend line as it is rising without deviating too far away from it. The median in this case is called dynamic trend line.

2/ Consolidation During A Declining Channel
That occurs when a financial instrument is oscillating around a bearish dynamic trend line as it is declining without deviating too far away from it.

3/ Consolidation During A Triangle Chart Pattern
A triangle is a type of consolidation. It does not matter whether it is one of the following:
a/ ascending triangle,
b/ descending triangle,
c/ symmetrical triangle,
d/ expanding triangle
e/ ABCDE Elliott wave triangle
f/ Or any other types of triangles.

4/ The horizontal Channel Consolidation

The most popular consolidation is the horizontal channel.
This time, the price is consolidating around two horizontal key levels. A resistance that is above the price's range and a support at the other end. Generally, at the sound of the word consolidation, many technical traders only think of the horizontal consolidation. Note that the horizontal consolidation is also called a balanced market pattern when one is talking about market profile.

During a trending phase, there are pauses in the form of various types of consolidation. However, the horizontal consolidation often precedes trending phases in the financial markets. Traders refer to a consolidation phase before a bullish trend as an accumulation, but the consolidation that precedes a bearish trend is called distribution.

Usually, the volatility is low during the consolidation, but there are times when one may come across high volatility consolidations.

5/ Combination Of Different Types Of Consolidations

For example, one may recognize a triangle within a normal consolidation or a smaller triangle in a wider triangle or another consolidation that is inside a dynamic consolidation.
Truly, as one begins to gain more experience as a technical trader, one will be able to pinpoint a wide varieties of consolidation market patterns.
One can just start highlighting the consolidations one by one.
Taking each pattern apart before looking for the next one until one could not isolate any more consolidations.

6/ Fractal Consolidations Trading

Fractal consolidations are those that duplicate their structures on various times frame. They are predictive consolidation patterns that can help advanced technical traders to forecast the next price-action.
Those consolidations may also copy and paste (duplicate) their structures
at different stages on the same time frame or from one financial instrument to another (financial instruments that belong to the same sector or index).

Understanding Consolidation Price Structures

Financial instruments consolidate around influential key levels.
When one identifies a consolidation, one must highlight the median line.
Moreover, one can highlight those median lines like the market profile traders, and
select the best trading set-ups around them.

Many times, a financial instrument will rise from one median line to the next and vice versa.
In fact, those median lines become more influential if the price did not revisit them since they are in place. Market profile traders wait for high probability trading set-ups near those virgin median lines.
A consolidation is also called balanced market because in theory there is an equal influence between the bullish and bearish traders. That equal influence or force causes the price to oscillate around a median price level. Truly, the bulls cause the price to rise up to a distance, but the bears quickly sell it, and it goes back to the initial point. One can say that the price is not going anywhere as long as there is a balanced market (or consolidation).

Conclusion


A technical traders must learn how to recognise and trade the different types of consolidations in any financial markets. One will also begin to improve technical trading as one aligns the appropriate trading strategy with each
consolidation pattern. As I always say to traders, the market pattern will determine the appropriate trading strategy one will be deploying. Use the various consolidations to positively impact your technical day and swing trading today.