Bitcoin Consolidation Patterns in Bitcoin Trading
With bilateral/consolidation patterns the Bitcoin market can head in any direction. There are 2 types of consolidation trade patterns which form on the Bitcoin Crypto Currency price charts:
- Symmetric Triangles - Consolidation chart patterns
- Rectangles - Range market
Symmetrical Triangles - Consolidation Patterns
Symmetrical triangles chart patterns are commonly referred to as consolidation chart patterns.
Symmetric triangles are chart setups with converging trend lines which form a consolidation phase. The buy signal from a symmetrical triangle pattern setup is the upside break, while a downward break is a trading sell trading signal. Ideally, a market breaks-out from a symmetrical triangle prior to reaching the apex of the symmetrical triangle.
Bitcoin Price Trend lines can be drawn by joining these lows and highs of the consolidation setup, the trend lines formed are symmetrical and converge to form an apex. A breakout should occur somewhere between 60-80% into the triangle chart pattern. An early or late break out is more liable to fail, & therefore less reliable. After a price breakout the apex forms support & resistance areas for the market price. Price that has already broken out of the triangle trading setup should not retrace past the apex level. The apex level is used as a stop loss setting area for the open Bitcoin trades.
When these consolidation pattern setups form we say that the Bitcoin market is taking a pause before deciding the next market trend direction to take.These consolidation patterns form when there is a tug of war between the buyers and the sellers and the market can't decide which way to proceed.
Consolidation Chart Setup
However, this consolidation pattern can not go on forever and just like in a game of tug of war 1 side eventually wins, looking at price chart below see how the consolidation pattern eventually had a breakout and moved in one direction. Now how do we make sure we are on the winning side?
Consolidation Pattern - Breakout Downwards - Sell Signal after a Consolidation Pattern
Consolidation Pattern - Breakout Upwards - Buy Trading Signal after a Consolidation Pattern
Now back to the question, how do we make sure we are on side that is winning?
Well we wait until price of Bitcoin moves past one of the lines and put buy/sell orders in that particular direction. After consolidation, if price breaks out the upper line buy, if it breaks-out the lower line we sell.
Alternatively if you do not want to wait out the consolidation pattern setup, you as a trader can set pending orders. If you'd want to learn more about pending orders navigate to the lesson: Stop Entry Order Types
The 2 types of stop orders used to trade Bitcoin consolidation setups are:
Buy Entry StopAn order to open buy at a point above the market price
Sell Entry StopAn order to sell at a point below the market price
These are orders to open a buy position above the market or to open a sell trade below the market that are executed at a specified price below or above the current market price.
Rectangle BTCUSD Setup
A rectangle consolidation setup pattern is a range with a narrow price action which forms a consolidation period in the Bitcoin prices market. The price range is defined by 2 parallel trend lines which are horizontal - indicating the presence of support & resistance. This rectangle chart pattern is drawn on a trading chart using a rectangle, therefore its name rectangle pattern setup.
For this consolidation chart pattern - the prices form multiple highs and lows that can be then joined with horizontal lines which are parallel to each other. This rectangle chart pattern forms over an extended period of time, giving the setup its rectangle shape.
A break-out of price action from this consolidation pattern setup forms when either of the horizontal line is penetrated & the trading range signal of the rectangle is broken. An upside breakout is a buy signal. A downward breakout is a sell signal.
Rectangle Pattern - Bitcoin Trading
Bitcoin price breaks out of the consolidation range after sometime and continues to move upwards after an upwardupward market price breakout.
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