Bilateral/Consolidation Stock Chart Setups Trading

With bilateral/consolidation stock trading chart patterns the market can head in any direction. There are 2 types of consolidation trade patterns that form on charts:

Symmetric/Symmetrical Triangles - Consolidation Chart Patterns
Rectangles - Range market

Consolidation Patterns

Symmetric triangles are chart patterns with converging trendlines which form a consolidation phase. The technical buy point from a symmetrical triangle is the upwards break, while a down side break is a trading sell signal. Ideally, a market breaks-out from a symmetrical triangle prior to getting to apex of the triangle.

Trend Lines can be drawn connecting these lows & highs of the consolidation setup, the trend lines formed are symmetrical and they converge to make an apex. A breakout should occur somewhere between 60-80% into the triangle pattern. An early or late breakout is more liable to fail, and thence less reliable. After a price break out the apex forms support & resistance areas for the price. Price that has broken out of the consolidation pattern should not retrace past the apex point. The apex point is used as a stop loss order setting area for the open trades.

When these consolidation setups form we say that the market is taking a break before deciding which is next direction to move.

The consolidation patterns form when there is a tug of war between buyers & the sellers & the market can't decide which way to continue.

Bilateral Consolidation Chart Setup on Chart

Consolidation Chart Pattern

However, this setup can't go on forever & just like in a tug of war one side eventually will win, looking at the chart below see how the consolidation pattern eventually had a break-out and moved in one direction. Now how do we as traders ensure we are on side that's winning?

Downwards Price Action Breakout After Consolidation

Break-out Downwards Sell Signal after a Consolidation Setup Pattern

Price Action Upward Breakout After Consolidation

Break Out Upward Buy Trading Signal after a Consolidation Setup Pattern

Now back to our question, how do we ensure we are on the side that is winning?

Well we wait until price goes past one of the lines & put buy or sell trade orders in that specific direction. After consolidating, If the price breaks out upper line we buy, if it breaks-out the lower line we open sell.

Alternatively if you don't want to wait out the consolidation, you as a stock index trader can use pending orders. If you would want to know more about pending orders go to the lesson: Stop Entry Order Types

The 2 types of stop order types used to trade consolidation trade patterns are:

Buy Entry Stop A pending order to open buy at a level that is above trading market price.

Sell Entry Stop An order to open a sell at a price below trading market price.

These are orders to open a buy trade above the market or to open a sell position below the market.

Rectangle Setup

A rectangle consolidation setup pattern is a range with narrow price action that develops and forms a consolidation period phase in market. The price range is defined by 2 parallel trend-lines which are horizontal & indicate the presence of support & resistance. This setup is drawn on a trading chart using a rectangle, hence thus its name rectangle trading pattern.

For this consolidation pattern, price forms multiple highs & lows that can be joined with horizontal trend lines which are parallel to each other. This setup forms over an extended period of time, giving the chart setup its rectangle shape.

A breakout of price action from this consolidation setup occurs when either of the horizontal line is penetrated & the price range of the rectangle is broken. An upside break out is a buy trade signal. A downside breakout is a sell signal.

Consolidation Chart Setups and Symmetrical Triangles Setup and Pattern

Rectangle Pattern Stock Index - Consolidation Pattern

Price Breaks the consolidation range after sometime & continues to move upward after an upward market break out.

Get More Lessons:

Trade Stock Indices

Bilateral/Consolidation Stock Chart Setups Trading

Consolidation Patterns

Rectangle Setup