The Art Of Trading - How To Trade During A Consolidation or Congestion Phase
953
Finance > Stock Market
Mar 1, 2007
Peter Lim
The Art Of Trading - How To Trade During 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.
Most of the time, typical consolidation patterns can be seen, with the most common one being the rectangle pattern or sometimes called a price "corridor" or channel.
When prices start to drop, traders get nervous and weak holders will sell their stocks so that they will fall to a support level which other traders will consider a good price to buy. From that level, stock prices will then rebound, often with volume as support comes into the stock.
As the price of the stock improves and increases, it will reach a peak where traders who have purchased the stock at lower prices will sell. At the same time, weak holders who have purchased the stock at higher prices may wish to bail out as their losses are narrowed with the improved prices. At that point in time, resistance is encountered and the stock price then tops over to form a peak.
When you connect the support prices and the peak prices where the price tops over, you will 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 suitable for trading within congestion phases. The key is to identify the bottom of the channel and to buy closer to the bottom of the channel and to sell as prices reaches the top 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 contented with smaller gains which come from trading the congested and consolidation phases. Fall back upon oscillators to track your stock prices and trade them in relation to their location within the price rectangle pattern that you can easily identify in your stock chart, Peter Lim is a Certified Financial Planner and author of the ebook "Swing Trading for Gigantic Profits" which you can check out on the website signaldot.poolofwisdom.com/swingbook.phtml You can also access free stock market trading resources and chart analysis techniques from his website on swing trading at www.online-guides.info
Most of the time, typical consolidation patterns can be seen, with the most common one being the rectangle pattern or sometimes called a price "corridor" or channel.
When prices start to drop, traders get nervous and weak holders will sell their stocks so that they will fall to a support level which other traders will consider a good price to buy. From that level, stock prices will then rebound, often with volume as support comes into the stock.
As the price of the stock improves and increases, it will reach a peak where traders who have purchased the stock at lower prices will sell. At the same time, weak holders who have purchased the stock at higher prices may wish to bail out as their losses are narrowed with the improved prices. At that point in time, resistance is encountered and the stock price then tops over to form a peak.
When you connect the support prices and the peak prices where the price tops over, you will 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 suitable for trading within congestion phases. The key is to identify the bottom of the channel and to buy closer to the bottom of the channel and to sell as prices reaches the top 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 contented with smaller gains which come from trading the congested and consolidation phases. Fall back upon oscillators to track your stock prices and trade them in relation to their location within the price rectangle pattern that you can easily identify in your stock chart, Peter Lim is a Certified Financial Planner and author of the ebook "Swing Trading for Gigantic Profits" which you can check out on the website signaldot.poolofwisdom.com/swingbook.phtml You can also access free stock market trading resources and chart analysis techniques from his website on swing trading at www.online-guides.info
Write a Review
Add to My Favorite
Refer it to Friend
Report Article
Other links owned by this user
Do you need more traffic to your web site, and more sales? If you do, then you need to consider an often neglected side of web site promotion which is called forum marketing. Most web sites make use of forums to provide the element of
Category:
A month ago, I reeived news that a former olleague of mine ollapsed in his offie, and had a sudden massive heart attak and did not survive the night to see his family. He was in his early fifties. This inident motivated another former
Category:
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 nsolidation or ngested phase. Most of the time, typical
Category:
If you like to ipod your car - pump music on your ipod through your car stereo system - apart from changing to a brand new car that has ipod integration such as BMW, Mercedes-Benz, Nissan and Volvo - there are other options available to
Category:
Oomph is the intricate inner feeling of that touch of power, unexplained yet real, that comes with the drinking of coffee" I had been a long term tea drinker, preferring tea to any other beverage for years, until one day, I had a new assistant. I was
Category:
Other links at Finance > Stock Market
In the wrld we live in tday there is n shrtage f access t investment infrmatin. This in itself hwever, can be an enrmus prblem. Asking questins abut hw t invest, where t invest, and what t lk fr, can bring yu many answers frm lts
Category:
Copyright 2006 Peter Woodhead There are two that are continually asked: 1. What do I do when I see signs of weakness? 2. What do I do when I see signs of strength? Before these two critical
Category:
Copyright 2006 Equitrend, Inc. It?s important that you understand the impact that a bear market has on your capital. The give and take of your investment capital is not equal. If you placed $100 into an investment and it declined 50% to $50,
Category:
It's been a wild and wooly couple of weeks on the international stock markets. But is the recent slide grinding to a halt...or just taking a breather before tumbling some more? And more importantly, what does it mean to astute penny stock
Category:
Many investors invested in the Great Uranium Bull Market with little rationale behind their speculation. Through the robust rallies of the past two years, it was easy to play the momentum of a newsletter writer?s recommendation. Quite a few did so, often
Category:
Site Sponsor
Directory Statistics
Articles: 68205
Categories: 501
Yahoo Entertainment
