When stock costs begin to move inside 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, everyday consolidation patterns can be seen, with the commonest one being the rectangle pattern or often called a price "corridor" or channel.
When prices begin to drop, traders get frightened and puny holders will sell their stocks in order that they will fall to a support level which other traders will consider a fair price to purchase. From that level, stock prices will then bounce, often with volume as support comes into the stock.
As the price of the stock improves and increases, it'll reach a peak where traders who have purchased the stock at lower prices will sell. At the exact same time, feeble holders who have bought the stock at increased prices may need to bail out as their losses are narrowed with the improved prices. At this point in time, resistance is encountered and the share price then tops over to form a peak.
When you connect the support prices and the peak prices where the price tops over, you'll find the pattern of a channel or a rectangle.
During consolidation phases, prices trade inside a range formed by the bottom of the channel or rectangle and the pinnacle of the rectangle or channel.
Technically, the use of oscillators will be acceptable for trading inside congestion phases. The trick is to identify the bottom of the channel and to buy nearer to the base of the channel and to sell as prices reaches the top of the channel or rectangle.
A common mistake newer trader's commit is to continue to use their trend following trading program during a congested phase and encounter plenty of whipsaws as costs oscillate between little ranges.
When you transit from a bullish market and moves into a bearish market, be happy with smaller gains which come from trading the choked and consolidation phases. Fall back on oscillators to track your stock prices and trade them re their location in the price rectangle pattern you can easily identify in your stock chart.
Most of the time, everyday consolidation patterns can be seen, with the commonest one being the rectangle pattern or often called a price "corridor" or channel.
When prices begin to drop, traders get frightened and puny holders will sell their stocks in order that they will fall to a support level which other traders will consider a fair price to purchase. From that level, stock prices will then bounce, often with volume as support comes into the stock.
As the price of the stock improves and increases, it'll reach a peak where traders who have purchased the stock at lower prices will sell. At the exact same time, feeble holders who have bought the stock at increased prices may need to bail out as their losses are narrowed with the improved prices. At this point in time, resistance is encountered and the share price then tops over to form a peak.
When you connect the support prices and the peak prices where the price tops over, you'll find the pattern of a channel or a rectangle.
During consolidation phases, prices trade inside a range formed by the bottom of the channel or rectangle and the pinnacle of the rectangle or channel.
Technically, the use of oscillators will be acceptable for trading inside congestion phases. The trick is to identify the bottom of the channel and to buy nearer to the base of the channel and to sell as prices reaches the top of the channel or rectangle.
A common mistake newer trader's commit is to continue to use their trend following trading program during a congested phase and encounter plenty of whipsaws as costs oscillate between little ranges.
When you transit from a bullish market and moves into a bearish market, be happy with smaller gains which come from trading the choked and consolidation phases. Fall back on oscillators to track your stock prices and trade them re their location in the price rectangle pattern you can easily identify in your stock chart.
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