The consolidation area is one of the most common areas found in a chart and it’s a basic day trading lingo. In fact, they are so popular that you even find consolidation indicators around the internet. If you’re a beginner it’s normal that you’re saying something like “But, Trader Chick, what is a consolidation area?”, you should not be worried, I got you covered. I’m going to tell you everything you need to know about a consolidation area.
A consolidation area can be REALLY profitable if you know how to read the market. You can find a lot of information around on how to identify a consolidation area and how to trade them. The breakout of a consolidation area is usually a continuation of a trend.
First of all, let’s see what a consolidation area is.
The consolidation area meaning in stocks or in the financial market is pretty simple, the short answer to that:
A consolidation area is a term used when security or stock is neither going ahead nor going backward in the price range and in terms of a trend. It’s there, in the middle. When consolidation happens the price usually bounce from a price range to another in a determinate price area. You can set your support and resistance right there.
Here’s a consolidation area example, that’s an easier way to understand it.
You can learn more about sideways trading here
Related Read: Day Trading Terms And Definitions
As you can see in the example, the consolidation area has the price bouncing from 2272.00 to 2277.00. It’s consolidating. You can set a support and resistance area right there. But it’s pretty easy to identify when they have already been shown in the chart, right? Usually, you will find consolidation areas in stocks or securities with low trading volume.
Imagine you are driving from NY to DC.
It’s a pretty straight forward.
You’re driving, determined.
You realize waze or google maps isn’t working properly and you aren’t going the right way.
So you start to veer around, ask for directions, basically not moving forward.
Then you get a call that your dog is vomiting. It’s nothing serious, but you pull over and start calling friends and family to see who can help you take it to the vet since you’re home.
Not you’re wondering if you should even go at all.
This is consolidation.
It’s doubt, it’s confusion, it’s second guessing, it’s total INDECISION.
This happens in the market ALL.THE.TIME.
Probably for different reasons, but one never really knows.
It’s humans and we all have crazy, emotional, unexpected reasons why we back down, turn around, keep going, take a break.
NEVER QUESTION THE CONSOLIDATION – the
We are not hear to question it or judge it, we are here to read it. And when we see CONSOLIDATION
WE STAY OUT ENTIRELY!!!!!!!!
Consolidation areas are fiercely known to rob traders of all their winnings and entire accounts.
Do NOT be one of those TRADERS!
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