What are consolidation patterns?

We distinguish between three consolidation patterns: sideways ranges, downward or upward sloping ranges (also called flags), or triangular consolidations (triangles, wedges and pennants). We will take a brief look at each pattern before exploring how to trade consolidation patterns.

What are continuation chart patterns?

Continuation chart patterns are those chart formations that signal that the ongoing trend will resume. Usually, these are also known as consolidation patterns because they show how buyers or sellers take a quick break before moving further in the same direction as the prior trend. Trends don’t usually move in a straight line higher or lower.

What does a breakout from a consolidation pattern mean?

A breakout from a consolidation pattern signals a victory by either buyers or sellers over the other. Standard breakout trading techniques include buying long and covering short when prices break through the resistance level, or selling short and covering long when prices drop below support.

What is a consolidation period?

Consolidated stocks typically trade within limited price ranges and offer relatively few trading opportunities until another pattern emerges. Technical analysts and traders regard consolidation periods as indecisive and cautious. 1 Stocks under consolidation trade in a limited range.