How to Trade Breakouts in Stock Indices

With consolidation patterns the market can move in any direction after a price breakout. Consolidation patterns are used to spot break out patterns in charts. There are two types of consolidation chart patterns that form on charts:

• Symmetric Triangles - Consolidation Patterns
• Rectangles - Range Chart Setups

How to Trade Break outs in Indices

Symmetrical triangles are chart patterns with converging trend lines that form a price consolidation period that signals there's going to be a price break out in one direction after this chart setup breaks-out in one direction. The buy signal from a symmetrical triangle is the upside price break, while a downside price break is a sell signal. Ideally, a the price breaks out from a consolidation chart pattern prior to reaching the apex of the triangle.

Indices Trend lines trend lines can be plotted connecting the lows & highs of the consolidation pattern for the price, the trendlines formed are symmetric & converge to form an apex - symmetric triangle pattern. A price break out should occur somewhere between 60% - 80% into the triangle consolidation pattern. An early or late indices break out is more prone to whipsaws, and therefore less reliable. After a price breakout to one side the apex of the symmetric triangle forms the support and resistance levels for the price. price that has broken out of the consolidation chart pattern should not retrace past the apex. The apex is used as a stop loss setting level for the open stock trades placed after a price break out.

When consolidation patterns form we say that the market is taking a pause before deciding the next direction to take - this also signals an impending price breakout - How to Trade Breakouts in Stock Indices - How Do I Identify Breakout Pattern? - Breakout Strategy Indices.

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

Consolidation Patterns - How to Trade Breakouts in Stock Indices - How to Identify Break Out Setup

However, this consolidation chart pattern cannot go on forever and just like in a tug of war one side eventually wins, the chart examples below shows how the consolidation chart pattern eventually had a price break out and moved in one direction.

How to Identify Break Out Pattern - Break Out Strategy Stock Indices - Breakout Strategy Lesson - The Complete Break Out Trader Guide

How to Identify Break Out Pattern - Break Out Strategy Stock Indices - Breakout Strategy Lesson - The Complete Break Out Trader Guide

After price consolidating, If price breaks-out the upper line we open buy trades, if price breaks-out the lower line we open sell stock trades.

How to Trade Break outs in Stock Indices

A rectangle consolidation pattern is a range with narrow price action that forms a consolidation period in market. The range is defined by 2 parallel trend lines which are horizontal & these indicate the presence of support and resistance levels at this particular area. Rectangle consolidation chart pattern is plotted on a chart trading using a rectangle, therefore thus its name indices rectangle stock trading chart pattern.

For this consolidation chart pattern, price forms a series of highs & lows that can be connected with horizontal trendlines which are parallel to each other. Rectangle consolidation chart pattern forms over an extended period of time giving this pattern its rectangle shape.

A breakout of price action from this rectangle consolidation chart pattern occurs when either of the horizontal line is penetrated and the range of this rectangle pattern is broken. An up side price break out is a buy signal. A downside price break out is a sell signal.

How to Trade Breakouts in Stock Indices - How Do I Identify Breakout Pattern? - Breakout Strategy Indices

Indices Price Breaks Out of the rectangle consolidation range after a period of time & price continues to move upward after an upward price break out.

How to Trade Breakouts in Stock Indices - Breakout Strategy Stock Indices - Breakout Strategy Lesson - The Complete Break Out Trader Guide