What's Consolidation Chart Setup in Forex?
How Do You Identify a Consolidation Pattern in Forex ?
The Best Patterns Guide for Beginners - How to Identify and Trade Consolidation Chart Pattern
Chart Setups for Day Trading - Trading Patterns Cheat Sheet
This Consolidation patterns charts guide explains how to identify patterns - spotting chart patterns is the first step when it comes to learning how to trade with Consolidation patterns in Forex.
Consolidation price patterns commonly form on charts & this chart setup analysis tutorial explains how to trade & analyze charts using Consolidation patterns.
Consolidation Chart Setups
Consolidation chart patterns are patterns with converging trend lines that form a price consolidation period. The technical buy point from a consolidation pattern is the upside break, while a down-side break is a technical sell signal. Ideally, a market breaks out from a symmetric triangle pattern before to reaching apex of the triangle pattern.
Trendlines can be drawn by connecting the lows & highs of the consolidation setup, the trend-lines formed are symmetric and converge to make an apex. A breakout should occur somewhere between 60-80% into the consolidation chart pattern - triangle pattern. An early or late break out is more liable to failure, and hence less reliable. After a price breakout the apex forms support & resistance levels for the price. Price that has broken out of the triangle pattern shouldn't retrace past the apex point. The apex of the consolidation chart pattern is used as a stop loss setting area for open trades.
When these consolidation chart setups form we say that the market is taking a break prior to deciding the next market trend direction to move.
The consolidation chart patterns form when there is a tug of war between the buyers & sellers and the market can't decide which way to continue.
Consolidation Chart Setup - What is Consolidation Chart Setup?
However, this consolidation pattern cannot go on forever and just like in a tug of war one side eventually wins, looking at chart below see how the consolidation pattern eventually had a break-out and moved in one direction. Now how do we as traders ensure that we are on the winning side?
Break-out Downwards Sell Signal after a Consolidation Chart Setup in Forex
Breakout Upward Buy Signal after a Consolidation Chart Setup in Forex
Now back to our question, how do we make sure we are on the winning side?
Well we wait until price moves past one of the lines of the consolidation chart pattern formation & put buy or sell orders in that direction. After consolidating, If price breaks out upper line buy, if it breaks out lower line we sell.
Alternatively if you do not want to wait out the consolidation chart pattern, you can use pending orders. If you'd like to know more about setting pending orders go to topic: Stop Entry Order Types
The 2 types of FX stop order types used to trade consolidation patterns are:
- Buy Entry Stop Order An order to open buy at a level above the market price - above consolidation chart pattern.
- Sell Entry Stop Order An order to open sell at a level below the market price - below consolidation chart pattern.
These are orders to open buy above the market or to open sell below the market.
