Bilateral/Consolidation Stock Indices Chart Patterns Indices Trading

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

• Symmetric Triangles - Consolidation trading patterns
• Rectangles - Ranging market

Consolidation Setups

Symmetrical triangles are chart patterns with converging trendlines which form a consolidation phase. The technical buy point from a symmetric triangle is the upward break, while a downside break is a technical sell trading signal. Ideally, a market breaks out from a symmetric triangle prior to reaching apex of the triangle.

Trend Lines can be plotted connecting the lows & highs of the trading consolidation setup, the trendlines formed are symmetrical & they converge to make an apex. A breakout should occur somewhere between 60-80% into the triangle pattern. An early or late break out is more liable to fail, and therefore less reliable. After a trading price break out the apex forms support and resistance zones for the trading 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 setupss form we say that the trading market is taking a break before deciding which is next direction to take.

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

Consolidation Pattern

However, this trading setup can't go on forever & just like in a tug of war one side will eventually 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 make sure we are on side that is winning?

Break-out Downwards Sell Indices Signal after a Consolidation Chart Setup

Break Out Upward Buy Signal after a Consolidation Chart Setup

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

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

Alternatively if you do not want to wait out the consolidation, you can use pending orders. If you-wouldyou'd want to know more about pending orders go to the lesson: Stop Entry Order Types

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

• Buy Entry Stop An order to buy at a level above trading market trading price.

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

These are orders to buy above the trading market or to sell below the trading market.

Rectangle Trading Setup

A rectangle consolidation setup is a trading range with narrow trading price action which forms a consolidation phase in market. The price range is defined by 2 parallel trendlines which are horizontal & indicate the presence of support and resistance. This pattern is plotted on a chart using a rectangle, therefore thus its name rectangle trading pattern.

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

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

Rectangle Pattern Stock Indices - Consolidation Pattern

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