Stock consolidations are unique in thatthey must always come to an end. This leads to two types of consolidation patterns. There are breakout patterns where the stock may be experiencing a consolidation but are still trending slightly positively, in the direction of a breakout. There are usually the consolidations you want to try and trade.
What is a Consolidated Stock?
Consolidation is the term for a stock or security that is neither continuing nor reversing a larger price trend. 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
How do you know if a stock is under consolidation?
An important step in trading consolidation patterns involves assessing how long the pattern has held. Trading on narrowly consolidated stocks can happen but there is often less room for profit due to the small range. You can identify a stock that is under consolidation by watching for three simultaneously occurring properties on a price chart.
Can a consolidation pattern make a profit?
Trading in consolidation patterncan result in a substantial profit, but you need a comprehensive understanding of consolidation to trade in it successfully. When a market trend is continuously moving upward or downward, it becomes increasingly vulnerable to a reversal.
