Bilateral/Consolidation Patterns Stock Indices

With bilateral/consolidation chart patterns the market can head in any direction. There are 2 different types of consolidation chart patterns that form on stock charts:

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

Consolidation Pattern Setups

Symmetrical triangles are chart patterns with converging trend-lines which form a consolidation phase. The buy point from a symmetrical triangle pattern is the up-side break, while a down-ward break is a technical sell signal. Ideally, a market breaksout from a symmetrical triangle pattern prior to reaching apex of the triangle chart pattern.

Stock Trendlines can be plotted connecting the lows & highs of the consolidation phase, the trend-lines formed are symmetrical & they converge together to make an apex. A break out should happen between 60% - 80% into the triangle chart pattern setup. An early or late break out is more prone to failure, & therefore less reliable. After a stock price break-out the apex forms support and resistance areas for the stock price. Price that has already broken out of the triangle consolidation chart pattern shouldn't retrace past the apex level. The apex level is used as a stop loss setting area for the open trades.

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

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

Consolidation Pattern

However, this trading chart pattern setup can not go on forever and just like in a tug of war one side wins eventually, looking at the stock chart below see how the consolidation pattern eventually had a breakout and moved in one direction. Now how do we as traders make sure that we are on the side that is winning?

Break Out Down-wards Sell Signal after a Consolidation Pattern

Break Out Up-ward Buy Signal after a Consolidation Pattern

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

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

Alternatively if you don't 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 tutorial: Stop Entry Order Types

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

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

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

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

Rectangle Pattern

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

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

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

Rectangle Pattern Stock Indices - Consolidation Pattern

Indices Price Breaks-out the consolidation range after sometime and continues to move upward after an upwardsupward market break out.