What is Consolidation in the Markets

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Full Transcript

And today’s lesson, I’m going to go over consolidation areas and transitions. Technically, they are pretty much the same thing. We’re going to go more into exactly what they look like.

The main difference with a transition area is it starts off as a consolidation and turns into a transition area because the market transitions, it switches direction consolidation areas simply as a slowdown and the market continues in the same direction.

So here we have a nice, strong movement upward and we have a consolidation area, a slow down. Another thing, another way to call consolidation areas is sideways movement. Right? So this is an obvious sideways movement. So what happens here?

This remains a consolidation because it continues moving upward. OK, so whenever we have this type of a movement, as in the live market, we don’t know what’s happening in the live market. We’re just seeing that it’s a slowdown. It’s a consolidation, right. And now we’re waiting.

What’s happening here is going to go up. Is it go down here in these areas? It’s 50, 50 percent. It could go either direction. You never want to speculate or guess and it continues upward. Here is a great example of a strong market up. Right.

An uptrend. And now we’re starting to see that these runs are starting to get smaller and smaller and smaller and smaller and smaller. So what’s happening when that happens?

We have a consolidation area, right? We have an area where the market is slowing down, consolidating in decision time. Traders are now fighting with one another. The buyers and the sellers are fighting it out. They’re deciding if the market is going to continue up or if the market is going to continue down. If it continues to set up, the buyers went out. If it starts if it changes direction and goes down, the sellers went out.

So whenever I see this, this is what we’re seeing in the market. Right. All we are noticing is that there is a consolidation area, a slowdown, and all we could do is simply read the market. All right, this is a consolidation area.

It keeps going, keeps going, consolidate in areas, have resistance support areas.

So here we are. And look what happens.

Bam, it goes down. This consolidation area turned into a transition area because the market transition and now headed down, this can happen throughout trends. Quite a lot because it’s kind of like, excuse me if you think of yourself as running a race. Sometimes you just need to slow down and catch your breath. That’s the same thing with the market, right?

So here we have. A run down.

It’s not a big one, but we have a little consolidation area, right? Again, this could be a transition area because it could very well change directions. But in the overall look, it just is a small consolidation area.

OK, then we continued down again and another consolidation area. So now this consolidation area actually is a little bit bigger, right? Because that resistance area is a little bit bigger, but it’s still a consolidation area. Right.

This could simply just move to this area here. We want to encompass all the pivots. This is a consolidation area. And here we go. We continue further down. And now we have a deeper retracement, a deeper pullback. And what happens here? We have another consolidation area, right?

Again, it could very well become a transition area. We don’t know. All we know is that the market has, excuse me, slowed down. And again, it’s just a consolidation area. It’s not a large one. It’s just a consolidation area. And we want to work with the market as it moves in the correct direction.

In this particular area, the chances of it going up are as high as it going down. So we always want to have confirmation and know nowhere to go. Consolidation areas could be small. This is a tiny little consolidation area. This is a small consolidation area. And transition areas don’t have to be big either. This is a transition area.

All we know is that is a slowdown where the runs and retracement are much smaller. And it’s either right now call the consolidation area, but now it turns into a transition area. That is the only thing really what it is. We don’t need to get caught up on the words as much as we need to understand and read the markets.

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