Consolidation, also known as range-bound movement, refers to a situation where neither bulls nor bears have gained a decisive advantage. At this point, the forces of supply and demand are basically balanced, the market lacks a clear directional movement, and the price chart is confined between support and resistance levels.
Any consolidation phase will not last indefinitely. Eventually, one side will prevail, which can be confirmed by observing price breakouts from one of the boundaries. These breakout moments often form good entry points.
Formation stages of consolidation (using the end of an uptrend as an example):
- During an uptrend, price continuously creates new highs and new lows; - When price creates a new high, pulls back to form a stage low, and then fails to break through the previous high again, the new high is roughly equal to the previous high. At this point, a horizontal channel can be drawn, which requires at least 3 points: 2 highs and 1 low, or 2 lows and 1 high; - During consolidation, price repeatedly encounters resistance or support at channel boundaries. These bounce signals can be used for trading. Market makers gradually accumulate positions during this period, a process that continues for some time; - Eventually, bulls and bears reach a resolution, price breaks through one of the boundaries, and a new trend is formed.
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Consolidation, also known as range-bound movement, refers to a situation where neither bulls nor bears have gained a decisive advantage. At this point, the forces of supply and demand are basically balanced, the market lacks a clear directional movement, and the price chart is confined between support and resistance levels.
Any consolidation phase will not last indefinitely. Eventually, one side will prevail, which can be confirmed by observing price breakouts from one of the boundaries. These breakout moments often form good entry points.
Formation stages of consolidation (using the end of an uptrend as an example):
- During an uptrend, price continuously creates new highs and new lows;
- When price creates a new high, pulls back to form a stage low, and then fails to break through the previous high again, the new high is roughly equal to the previous high. At this point, a horizontal channel can be drawn, which requires at least 3 points: 2 highs and 1 low, or 2 lows and 1 high;
- During consolidation, price repeatedly encounters resistance or support at channel boundaries. These bounce signals can be used for trading. Market makers gradually accumulate positions during this period, a process that continues for some time;
- Eventually, bulls and bears reach a resolution, price breaks through one of the boundaries, and a new trend is formed.