Bilateral/Consolidation Chart Patterns XAUUSD

With bilateral/consolidation chart patterns the market can head in any direction. There are two types of consolidation patterns that form on charts:

• Symmetric Triangles Patteerns - Consolidation patterns
• Rectangles Patteerns - Ranging market

Consolidation Chart Setups

Symmetrical 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 down-ward break is a technical sell signal. Ideally, a market breaks out from a symmetrical triangle prior to reaching apex of the triangle.

Trendlines can be plotted connecting the 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 chart pattern. An early or late break out is more liable to failure, and therefore less reliable. After a price break out the apex forms support and resistance zones for the price. Price that has broken out of the consolidation pattern should not retrace past the apex point. The apex point is used as a stop loss setting area for the open trades.

When these consolidation chart setupss form we say that the market is taking a pause before deciding next direction to take.

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.

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 pattern eventually had a breakout and moved in one direction. Now how do we as traders ensure that we are on the side that is winning?

Breakout Downward Sell Signal after a Consolidation Chart Setup

Breakout Upward Buy Signal after a Consolidation Chart Setup

Now back to our question, how do we make sure we are on the side that's 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 price breaks-out the upper line we buy, if it breaks out out the lower line we open sell.

Alternatively if you do not want to wait out the consolidation, you can use pending orders. If you-wouldyou'd want to learn more about pending orders navigate to the lesson: Stop Entry Order Types

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

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

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

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

Rectangle Chart Setup

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

For this consolidation pattern, price forms multiple highs and lows that 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 this rectangle is broken. An upside break out is a buy signal. A downside break out is a sell signal.

Rectangle Pattern XAUUSD - Consolidation Pattern

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