Bilateral/Consolidation Stocks Chart Patterns Stock Trading
With bilateral/consolidation stocks chart patterns the stocks trading market can move in any direction. There are two different types of consolidation stocks chart patterns that form on stock charts:
- Symmetric Triangles - Consolidation stocks chart patterns
- Rectangles - Range/ranging market
Consolidation Stock Trading Chart Patterns
Symmetrical triangles are stocks chart patterns with converging stock trend lines that form a consolidation period. The technical buy point from a symmetrical triangle is the upside break, while a downside break is a technical sell stock signal. Ideally, a market breaks out from a symmetrical triangle prior to reaching the apex of the triangle.
Stock Trend lines can be drawn connecting the lows and highs of the consolidation phase, the stock trend lines formed are symmetric and converge to form an apex. A breakout should occur somewhere between 60-80% into the triangle stocks chart pattern. An early or late breakout is more prone to failure, and therefore less reliable. After a stock price breakout the apex forms support and resistance levels for the stock price. Stock Price that has broken out of the apex should not retrace past the apex. The apex is used as a stop loss setting area for the open Stock trades.
When these consolidation patterns form we say that the stocks trading market is taking a break before deciding the next direction to take.
These consolidation patterns form when there is a tug of war between the buyers and the sellers and the stocks trading market cannot decide which way to move.
Consolidation Stock Trading Chart Pattern
However, this pattern cannot go on forever and just like in a tug of war one side eventually wins, looking at the stock chart below see how the consolidation eventually had a breakout and moved in one direction. Now how do we make sure we are on the winning side?
Breakout Downwards Sell Stock Trading Signal after a Consolidation
Breakout Upwards Buy Stock Trading Signal after a Consolidation
Now back to our question, how do we make sure we are on the winning side?
Well we wait until stocks price moves past one of the lines and put buy or sell orders in that direction. After consolidating, If stocks price breaks the upper line we buy, if it breaks the lower line we sell.
Alternatively if you do not want to wait out the consolidation, you can use pending stock orders. If you would like to know more about pending stock orders go to the topic: Stop Entry Stock Trading Order Types
The two types of stop order types used to trade consolidation stocks chart patterns are:
- Buy Entry Stop
An order to buy at a level above the stocks trading market stock price.
- Sell Entry Stop
An order to sell at a level below the stocks trading market stock price.
These are stock orders to buy above the stocks trading market or to sell below the stocks trading market.
Rectangle Stock Trading Chart Pattern
A rectangle consolidation pattern is a trading range with narrow stocks price action that forms a consolidation phase in stocks market. The trading range is defined by two parallel stock trend lines which are horizontal and indicate the presence of support and resistance. This stock trading pattern is drawn on a stock chart using a rectangle, therefore its name rectangle stocks chart pattern.
For this consolidation stocks chart pattern, stocks price forms multiple highs and lows that can be connected with horizontal stock trend lines that are parallel to each other. This stock trading pattern forms over an extended period of time giving the pattern its rectangle shape.
A breakout of stocks price action from this consolidation pattern occurs when either of the horizontal line is penetrated and the trading range of this rectangle is broken. An upside breakout is a buy stock signal. A downside breakout is a sell stock signal.
Rectangle Pattern Stocks - Consolidation Pattern
Stock Price Breaks the consolidation range after sometime and continues to move upwards after an upwards market breakout.