Knowing About The Art Of Trading - Ways To Trade In A Consolidation Or Congestion Phase
When stock prices start to move within a certain range, falling to established lows and then rebounding up to established highs and fall back again, the stocks are said to be in a consolidation or congested phase.
Much of the time, standard consolidation patterns can be seen, with the commonest one being the rectangle pattern or often called a price "corridor" or channel.
When costs begin to drop, traders get scared and weak holders will sell their stocks in order that they will fall to a support level which other traders will consider a reasonable price to purchase. From that level, stock costs will then rebound, frequently with volume as support comes into the stock.
As the cost of the stock improves and increases, it'll reach a top where traders who've purchased the stock at lower costs will sell. At the exact same time, puny holders who've bought the stock at higher costs may want to bail out as their losses are narrowed with the improved costs. At this point in time, resistance is faced and the share price then tops over to form a top.
When you connect the support costs and the top costs where the price tops over, you'll find the pattern of a channel or a rectangle.
During consolidation phases, prices trade within a range formed by the bottom of the channel or rectangle and the top of the rectangle or channel.
Technically, the use of oscillators will be appropriate for trading inside congestion phases. The secret's to identify the base of the channel and to buy nearer to the base of the channel and to sell as costs reaches the pinnacle of the channel or rectangle.
A common mistake newer traders commit is to continue to use their trend following trading system during a congested phase and encounter a lot of whipsaws as prices oscillate between a small range.
When you transit from a bullish market and moves into a bearish market, be delighted with smaller gains which come from trading the congested and consolidation phases. Fall back on oscillators to trace your stock costs and trade them re their location in the price rectangle pattern you can simply identify in your stock chart.
Article Source: FxTradingStock.com
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by: Stuart Fischer
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Date: Mon, 7 Feb 2011
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