Consolidation Patterns - How to Identify Breakout Pattern
With consolidation chart patterns the market can move in any direction after a forex price breakout. Consolidation patterns are used to spot break-out patterns in forex charts. There are two types of consolidation patterns that form on forex charts:
- Symmetric Triangles - Consolidation Patterns
- Rectangles - Range Chart Patterns
Symmetrical Triangles - Consolidation Trading Patterns - How to Trade Breakouts In Forex
Symmetrical triangles are forex patterns with converging trend lines that form a price consolidation period that signals there is going to be a price breakout in one direction after this forex chart pattern breaks out in one direction. The forex buy signal from a symmetrical triangle is the upside forex price break, while a downside forex price break is a forex sell signal. Ideally, a the forex price breaks out from a forex consolidation chart pattern prior to reaching the apex of the triangle.
Forex Trend lines forex trend lines can be drawn connecting the lows & highs of the consolidation pattern for the price, the trend lines formed are symmetric and converge to form an apex - symmetric triangle pattern. A forex price break out should occur somewhere between 60% - 80% into the triangle consolidation pattern. An early or late forex break out is more prone to forex whipsaws, and therefore less reliable. After a forex price breakout to one side the apex of the symmetric triangle forms the support and resistance levels for the forex price. Forex price that has broken out of the consolidation chart pattern should not retrace past the apex. The apex is used as a stop loss setting level for the open forex trades placed after a forex price breakout.
When forex consolidation patterns form we say that the forex market is taking a pause before deciding the next direction to take - this also signals an impending price breakout - How to Identify Breakout Pattern - Breakout Strategy Forex.
These forex consolidation patterns form when there is a tug of war between buyers and sellers and forex market can't decide which way to continue.
Consolidation Patterns - How to Trade Breakouts in Forex - How to Identify Breakout Pattern
However, this consolidation chart pattern cannot go on forever and just like in a tug of war one side eventually wins, the forex chart examples below shows how the consolidation pattern eventually had a price break out & moved in one direction.
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After forex price consolidating, If forex price breaks out the upper line we open forex buy trades, if forex price breaks-out the lower line we open sell forex trades.
Rectangle Pattern - Breakout Strategy Forex
A rectangle consolidation pattern is a trading range with narrow forex price action that forms a consolidation period in FX trading market. The forex trading range is defined by 2 parallel forex trend lines which are horizontal and these indicate the presence of support and resistance levels at this particular area. Rectangle consolidation chart pattern is drawn on a FX trading chart using a rectangle, therefore the name forex rectangle chart pattern.
For this forex consolidation chart pattern, forex price forms a series of highs & lows that can be connected with horizontal forex trend lines that are parallel to each other. Rectangle consolidation pattern forms over an extended period of time giving this forex trading pattern its rectangle shape.
A forex breakout of price action from this rectangle consolidation chart pattern occurs when either of the horizontal line is penetrated & forex trading range of this rectangle forex pattern is broken. An up side forex price breakout is a buy signal. A downside forex price break-out is a sell signal.
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Forex Price Breaks Out of the rectangle consolidation range after a period of time and price continues to move upward after an upwards forex price breakout.
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