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.