Consolidation Chart Patterns in Gold Trading

With bilateral/consolidation chart patterns the market can move in any direction. There are two types of consolidation patterns that 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 technical buy point from a symmetrical triangle is the upside break, while a down-side break is a technical sell signal. Ideally, a market breaks out from a symmetrical triangle prior to reaching the apex of the triangle.

XAUUSD Price Trend lines can be drawn connecting the lows & highs of the consolidation phase, the trend lines formed are symmetric and converge to form an apex. A breakout should occur somewhere between 60-80% into the triangle chart pattern. An early or late breakout is more prone to failure, & therefore less reliable. After a price breakout the apex forms support and resistance levels 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 cannot decide which way to move.

Consolidation Chart Pattern

However, this pattern can't go on forever and just like in a 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 make sure we are on the winning side?

Consolidation Pattern - Breakout Downwards - Sell Signal after a Consolidation

Consolidation Pattern - Breakout Upwards - Buy Signal after a Consolidation

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 or sell orders in that direction. After consolidating, if 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 trader can use pending orders. If you would like to know more about pending orders go to the tutorial: Stop Entry Order Types

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

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

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

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

Rectangle Chart Pattern

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

For this consolidation pattern - the prices form multiple highs and lows that can be connected with horizontal lines that are parallel to each other. This pattern forms over an extended period of time 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 trading range of the rectangle is broken. An upside breakout is a buy signal. A downside breakout is a sell signal.

Rectangle Chart Pattern

Gold price breaks the consolidation range after sometime & continues to move upwards after an upwards market breakout.