How To Trade During A Consolidation Or Congestion Phase
When stock prices begin to move inside a certain range, falling to established lows and rebounding around established highs, talk with resistance, and fall again, the stocks are reported to be in a consolidation or congested phase.
Most of that time period, typical consolidation patterns is seen, with common one being the rectangle pattern or sometimes called a cost "corridor" or channel.
When prices begin to drop, traders get nervous and weak holders will sell their stocks so they will fall to a support level which other traders will look at a good price to get. From that level, stock prices will rebound, often with volume as support makes the stock.
As the cost of the stock improves and increases, it'll reach a peak where traders who've purchased the stock at lower prices will sell. Simultaneously, weak holders who've purchased the stock at higher prices may decide to bail out as their losses are narrowed with the improved prices. At that time with time, resistance is encountered and the stock price then tops to form a peak.
When you connect the support prices and the peak prices where in fact the price tops over, you will discover the pattern of a channel or perhaps a rectangle.
During consolidation phases, prices trade inside a range formed by underneath of the channel or rectangle and the very best of the rectangle or channel.
Technically, the usage of oscillators will undoubtedly be ideal for trading within congestion phases. The main element would be to identify underneath of the channel also to buy nearer to underneath of the channel also to sell as prices reaches the very best of the channel or rectangle.
A common mistake newer traders commit would be to continue steadily to use their trend following trading system throughout a congested phase and encounter plenty of whipsaws as prices oscillate between a little range.
When you transit from the bullish market and moves right into a bearish market, be contented with smaller gains that can come from trading the congested and consolidation phases. Identifying where in fact the price is at the channel is an excellent way to assist you to trade of these consolidation and congested phases.