Bilateral/Consolidation Chart Patterns Trading

With bilateral/consolidation patterns the market can move in any direction after these patterns have formed. There are 2 types of consolidation patterns that form on charts:

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

Symmetrical Triangle Patterns - Consolidation Chart Setup Patterns

Symmetrical triangles patterns are patterns with converging trend lines that form a consolidation period in the price movement. The technical buy point from a symmetrical triangle chart pattern 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 chart pattern & the price breakout can either move upwards or downwards.

Trend Lines can be drawn connecting the lows & highs of the consolidation phase of these symmetrical triangle consolidation patterns, the trend lines formed are symmetrical and converge to make an apex. A price breakout should occur somewhere between 60-80% into the triangle pattern. An early or late break out is more prone to failure or whipsaws, & therefore less reliable. After a price breakout the apex forms the support and resistance levels for the price. Price that has broken out of the triangle trading setup 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 pattern setups form we say that the market is taking a break before deciding the next price direction to take.

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

Forex Consolidation Pattern - Symmetrical Triangle Consolidation Chart Pattern

However, this consolidation chart pattern cannot go on forever & just like in a tug of war one side eventually wins, looking at chart below see how the consolidation pattern eventually had a price breakout and moved in one direction. Now, how do we make sure we are on the winning side of the trade?

Price Break-out Downwards Sell Signal after a Consolidation Symmetric Triangle Chart Pattern

Break-out Up-ward Buy Signal after Consolidation Chart Pattern

Now back to our question, how do we make sure we are on the winning side of the trade breakout?

Well we wait til the price moves past one of the consolidation lines and put buy or sell orders in that direction. After consolidating, If the price breaks-out the upper line we buy, if it breaks out the lower line we sell.

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

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

• Buy Stop Order A pending order to open buy at a level that is above the market price.

• Sell Stop Order A pending order to open sell at a level that is below the market price.

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

Rectangle Chart Pattern

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

For this consolidation setup, price forms multiple highs and lows that can be then joined with horizontal trend lines that are parallel to each other. This rectangle pattern forms over an extended period of time giving this consolidation pattern setup its rectangle shape.

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

Rectangle Pattern Consolidation Pattern

Price breaks the consolidation range after sometime and continues to move upwards after an upwards market price breakout.