How Do I Trade a Consolidation Pattern?

To trade consolidation patterns in traders need to learn about the technical analysis of consolidation setup.

Consolidation Setups

Consolidation patterns are chart patterns with converging trend-lines that form a price consolidation period.

The technical buy point from a consolidation chart pattern is the upside breakout of price

While a downside breakout of price is a technical sell signal.

Ideally, a market breaks out from a symmetrical triangle pattern before to reaching apex of the triangle chart pattern.

Trendlines can be drawn connecting the lows & highs of the consolidation setup, the trend-lines formed are symmetrical and converge together to make an apex.

A price breakout should occur somewhere between 60-80% into the consolidation chart pattern - triangle pattern. An early or late break out is more prone to fail, and therefore less reliable.

After a price break-out the apex forms support and resistance areas for the price. Price that has already broken out of the triangle consolidation pattern should not retrace past the apex point. The apex of the consolidation chart pattern is used as a stop loss setting level for open trades.

When these consolidation setupss form we say that the market is taking a break before deciding which is the next direction to take.

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

Trade a Consolidation Pattern?

However, this consolidation setup can not go on forever and just like in a tug of war one side eventually wins, looking at chart examples illustrated and explained below see how the trading consolidation pattern eventually had a price break-out and moved in one direction.

Consolidation Chart Setup Price Breakout Downwards - Sell Trading Signal

Consolidation Chart Setup Price Break-out Upward - Buy Signal