Bilateral/Consolidation Patterns Gold Trading

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

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

Consolidation Trading Patterns

Symmetric triangles are chart patterns with converging trendlines which form a consolidation period. The technical buy signal from a symmetrical triangle is the upward break, while a down-ward break is a technical sell signal. Ideally, a market breaks-out from a symmetrical triangle before to reaching apex of the triangle chart pattern.

Trendlines can be plotted by connecting the lows & highs of the consolidation phase, the trendlines formed are symmetric & they converge to form an apex. A break out should happen between 60% and 80% into the triangle chart pattern. An early or late break out is more liable to fail, & therefore less reliable. After a price break out the apex forms support and resistance zones for the price. Price that has broken out of the consolidation chart pattern shouldn't retrace past the apex level. The apex level is used as a stop loss order setting area for the open trades.

When these consolidation chart patterns form we say that the market is taking a break prior to deciding next trend direction to move.

These consolidation chart patterns form when there's a tug of war between the buyers & the sellers & the market can't decide which side to move.

Consolidation Pattern

However, this trading chart pattern can not go on forever & just like in a tug of war one side will eventually win, looking at the chart below see how the consolidation eventually had a breakout & moved in one direction. Now how do we as traders ensure that we are on the side that's winning?

Breakout Downwards Sell Trade Signal after a Consolidation Pattern

Break Out Upwards Buy Trade Signal after a Consolidation Pattern

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

Well we wait til price goes past one of the lines & put buy or sell trade orders in that particular direction. After consolidating, If price breaks-out the upper line we buy, if it breaks-out out the lower line we open sell.

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

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

• Buy Entry Stop An order to open buy at a level above market price.

• Sell Entry Stop An order to sell at a level below market price.

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

Rectangle Trading Pattern

A rectangle consolidation chart pattern is a range with a thin price action that forms a consolidation period phase in market. The price range is defined by 2 parallel trendlines which are horizontal & show the presence of support & resistance. This pattern is plotted on a chart using a rectangle, hence, the name rectangle chart pattern.

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

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

Rectangle Pattern XAUUSD - Consolidation Pattern

Price Breaks the consolidation trading range after sometime & continues to move upward after an up-wardsupward market break out.