How to effectively trade consolidation

How to effectively trade consolidation

Today I’ll show you how to effectively deal with consolidation. First we need to define consolidation to know that the time has come to change market access. Consolidation is one of the stages of the market that is changing the trend. In general, consolidation prevails over the trend period, so we will encounter it very often on Forex market. From the above figure, it is evident in what phases the market may be. Either the market dominates in one direction, then we talk about the matter we called impulses or trends. This movement is then alternated either by a correction that represents a counter-movement followed by a new impulse or consolidation that may or may not result in a continuation of the trend.

How do we know that the Forex market is consolidating?

We can put the premise that consolidation is everything else that is not a trend or a trend correction. If we assume that the trend is a regular rotation of higher high and low or lower high and low, with correction being part of the trend, then everything that is not so regular is consolidation, in other words, side to side.

How we must trade consolidation?

Trading within consolidation

Have you ever wondered what de facto is going on inside the consolidation, why does it arise? Generally speaking, during the consolidation period, supply with demand is offset, and consolidation will continue until one side exceeds the other. Richard Wyckoff, one the pioneers of technical analysis, has taught about distribution and accumulation, which reminds me of the consolidation treatise. During the consolidation process, important support and resistance are emerging. The market responds very strongly. Therefore, if we want to trade the market within consolidation, it is essential that these zones be correctly identified. These zones are then used for pinbar, outer-bar and inner bar sirloin traces. However, we adhere to the rule that the input signal must originate in the timeframe on which we have identified the consolidation and on which it is practically. The difference is to follow the consolidation on the daily chart, while seeing the market nicely as an hourly graph. If such a signal arises, we manage money-management according to the candle, and we place the first take-profit in ½ consolidation and the other on the opposite side of the consolidation.

Trading violation of consolidation

These approach is suitable for early adventures, each consolidation has its two key values:

Lowest closing price – LC

Highest closing price – HC

These values ​​need to be identified. Then we watch when the candle closes above / below this value. As soon as this happens, we move to a lower time frame – from H4 to H1 and watch for pullbacks or throwbacks to Lowest closing price or Highest closing price. Of course, we are looking for candle formations that very well eliminate false passes.