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A consolidation is a period of range-bound activity after an extended price move. Consolidation illustrates the lack of a trend in a particular trading range. Price has consolidated. It frequently occurs after downtrends or uptrends, and can be seen as a stretch of indecision.
A consolidation is a period of range-bound activity after an extended price move. Consolidation illustrates the lack of a trend in a particular trading range. Price has consolidated. It frequently occurs after downtrends or uptrends, and can be seen as a stretch of indecision.
You can identify a stock that is under consolidation by watching for three simultaneously occurring properties on a price chart.The first is that the stock has definable and steady support and resistance levels, much like a flag continuation pattern.The second characteristic is a narrow trading range.More items...
When scanning for a consolidation breakout, there are four conditions/signals that you should look for:Has the stock been consolidating?Was the stock in an uptrend prior to that consolidation?Has the stock broken out of that narrow trading range?Has volume increased sharply, confirming the breakout?
One of the common strategies to trade in consolidation is to check out for breakout or breakdown. Breakout is when the trend reversal is bullish, usually accompanied by an increase in volume. The resistance level turns into new support. Traders enter a long position when the stock breaks out from the resistance line.