Consolidation Pattern Setups in XAUUSD

With bilateral/consolidation chart patterns the market can move in any direction. There are 2 types of consolidation patterns which form on the Gold price trading charts:

• Symmetric Triangles - Consolidation chart patterns
• Rectangles - Range/ranging market

Symmetrical Triangles - Consolidation Chart Patterns

Symmetric triangles are commonly referred to as consolidation patterns.

Symmetric triangles are chart patterns with converging trendlines that form a consolidation period. The trading buy point from the symmetrical triangle is the up-side break, while a down side break is a trading sell signal. Ideally, a market breaks out from the symmetrical triangle before reaching the apex of the symmetrical triangle.

XAUUSD Price Trend-lines can be drawn connecting/joining the lows & highs of the consolidation phase, the trend lines formed are symmetric and converge to form the apex. A breakout should occur somewhere between 60-80% into the triangle chart pattern. An early or late break-out is more prone to failure, & thenceforth less reliable. After a price breakout the apex forms support & resistance zones for the price. Price that has broken out of the apex should not retrace past the apex. The apex is used as a stop loss setting area for the open Gold trades.

When these consolidation chart patterns form we say that the Gold market is taking a break prior to deciding next trend direction to move.These consolidation chart patterns form when there is a tug of war between the buyers and the sellers and the market can not decide which way to move.

Consolidation Setup

However, this pattern can't go on forever and just like in a game of tug of war one side eventually wins, looking at the price chart below see how the consolidation eventually had a breakout and moved in one direction. Now how do we ensure we are on the winning side?

Consolidation Pattern - Breakout Downward - Sell Trade Signal after a Consolidation Setup

Consolidation Pattern - Breakout Upwards - Buy Signal after a Consolidation Setup

Now back to our question, how do we make sure we are on the winning side?Well we wait until price of Gold moves past one of the lines and put buy/sell orders in that particular direction. After consolidating, if the price breaks upper line we buy, if it breaks the lower line we sell.

Alternatively if you don't want to wait out the consolidation, you as a gold trader can use pending orders. If you would like to know more about pending orders go to the course: Stop Entry Order Types

The 2 types of stop order types used to trade consolidation chart patterns are:

Buy Entry StopAn order to open a buy at a price level that is above market price

Sell Entry StopAn order to open sell at a price that is below the market price

These are orders to open buy above the market or to open a sell below the market.

Rectangle Setup

A rectangle consolidation pattern setup is a trading range with narrow price action that forms a consolidation period in Gold prices market. The range is defined by two parallel trendlines which are horizontal and indicate the presence of support & resistance. This setup is drawn on a chart using a rectangle, hence its name rectangle chart pattern.

For this consolidation setup - the prices form multiple highs and lows that can be linked with horizontal lines that are parallel to each other. This pattern setup formation forms over an extended time period giving the pattern its rectangle shape.

A breakout of price action from this consolidation pattern occurs when either of the horizontal line is penetrated & the range of the rectangle pattern is broken. An up-side break-out is a buy trade signal. A down-side break-out is a sell signal.

Rectangle Chart Setup

Gold price breaks the consolidation range after some time & continues to move upwards after an upwards market break-out.

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