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

Symmetrical 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 & 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 patternss form we say that the market is taking a pause before deciding next direction to take.

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 is 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 is 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 can use pending orders. If you-wouldyou'd 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 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, therefore, the name rectangle chart pattern.

For this consolidation chart pattern, xauusd price forms multiple highs & lows that can be connected with horizontal trendlines 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 this 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.