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 Setups

Symmetrical triangles patterns are chart 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 downward break is a technical sell signal. Ideally, a market breaks out from a symmetrical triangle prior to reaching the apex of the triangle pattern & the price breakout can either move upwards or downwards.

Trendlines can be drawn by 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 forex 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, and therefore less reliable. After a price breakout the apex forms the support and resistance levels for the price. Price that has already broken out of the triangle 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 setupss form we say that the market is taking a break before deciding the next price direction to take.

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

Forex Consolidation Chart Setup - Symmetrical Triangle Consolidation Chart Setup

However, this consolidation pattern cannot go on forever & just like in a tug of war one side eventually wins, looking at the 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 Breakout Downward Sell Signal after a Consolidation Symmetric Triangle Chart Setup

Breakout Upwards Buy Signal after Consolidation Chart Setup

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

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

Alternatively, if you do not want to wait out the consolidation chart pattern to play out, you 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 buy at a level above the market price.

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

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

Rectangle Chart Setup

A rectangle consolidation setup is a trading range with narrow price action that forms a consolidation 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, therefore the name rectangle chart pattern.

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

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

Rectangle Pattern Consolidation Pattern

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