Trade Forex Trading

Bilateral/Consolidation Patterns XAUUSD

With bilateral/consolidation chart patterns the market can go in any direction. There are 2 types of consolidation trade patterns which form on charts:

  • Symmetrical Triangles - Consolidation Chart Patterns
  • Rectangles - Range market

Consolidation Setups

Symmetric triangles are chart patterns with converging trendlines that form a consolidation phase. The technical buy point from a symmetrical triangle is the upward break, while a downwards break is a trading sell trade signal. Ideally, a market breaks out from the symmetrical triangle before reaching apex of the symmetrical triangle.

Trend-Lines can be drawn connecting these lows and highs of the trading consolidation setup, the trendlines formed are symmetrical & they converge to make an apex. A breakout should occur somewhere between 60-80% into the triangle pattern. An early or late break-out is more liable to failure, & henceforth less reliable. After a price break-out the apex forms support & resistance levels for the price. Price that has broken out of the consolidation setup shouldn't retrace past the apex point. The apex point is used as a stop loss setting area for the open trades.

When these consolidation chart setups form we say that the market is taking a break prior to deciding next direction to head.

The consolidation patterns form when there is a tug of war between buyers and the sellers and the market can't decide which way to proceed.

Rectangle Patterns Gold - Consolidation Chart Pattern

Consolidation Chart Setup

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

Consolidation Chart Setups and Symmetrical Triangle Patterns - How Do I Interpret Gold Breakout Pattern?

Breakout Downward Sell Signal after a Consolidation Chart Setup

Rectangle Patterns XAUUSD - How Do You Interpret Pattern Breakout?

Breakout Upward Buy Trading Signal after a Consolidation Chart Setup

Now back to our question, how do we make sure we are on the side that is winning?

Well we wait until price goes past one of the lines and put buy or sell trade orders in that specific direction. After consolidation, If the price breaks-out the upper line we buy, if it breaks out of the lower line we open sell.

Alternatively if you do not want to wait out for the consolidation, you as a gold trader can use 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 order types used to trade consolidation trading patterns are:

  • Buy Entry Stop An order to buy at a level above price.

  • Sell Entry Stop An order to open sell trade at a level below price.

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

Rectangle Chart Pattern

A rectangle consolidation chart setup is a range with thin price action that creates a consolidation phase in market. The price range is defined by 2 parallel trend lines which are horizontal and indicate the presence of support & resistance. This pattern is drawn on a chart using a rectangle, hence, the name rectangle pattern.

For this consolidation pattern, price forms multiple highs and lows which can be joined with horizontal trendlines that are parallel to one another. This pattern forms over an extended period of time, giving the chart pattern its rectangle shape.

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

How to Interpret Rectangle Consolidation Trading Chart Setups in Trading

Rectangle Pattern XAUUSD - Consolidation Pattern

Price Breaks the consolidation range after sometime & continues to move upwards after an upward market break out.

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