Consolidation, also known as sideways, flat, trading range, is one of the most important moments in understanding the workings of financial markets. Here we will not show examples of trades, entry points and other signals that can be used in a sideway moves. The task is to understand what consolidation is, how and why it is formed and how to use it in trading.
✴️ What is consolidation in trading?
Consolidation price movement in a narrow trading range, the boundaries of which are defined by support (below) and resistance (above) zones. If there is an imbalance, the price starts to rise or fall, then a trend is formed. The absence of a trend on the market is consolidation.
✴️ Why consolidation forms?
In any market, forex, stock market, cryptocurrency market or futures market there will always be these consolidations. A sidewall is necessary for the price to rest after a long movement, i.e. after a trend. In reality, this rest is caused by the presence of a big player in the market.
As much as you do not want it, a big player is present everywhere and always, that is how markets are organized. How do institutions work? A big player will buy up all the assets in the market to drive up the price later and sell them higher. It's like with monopolists. First, they drive their competitors out of the market and then they become one of a kind. How does all this relate to consolidation? All of us, are just ordinary, retail traders. We think differently than the big player. When you open buy or sell orders, the market won't even notice it, but when big players open position it will be visible immediately. Consolidation is necessary in order to gain the necessary volume without raising the price on the market.
✴️ How a sideways move works?
For a market maker, consolidation is his trading range. It deliberately creates price borders within which it will work until it gains the necessary volume. At the top of the consolidation (resistance zone), the big player will sell, and at the bottom (support zone) it will buy. It makes no difference where the price comes out of the flat, in accumulation and distribution the boundaries work the same way. If a big player needs to unload (distribute, sell) his assets, let it be shares, he will sell them from the top to us retail traders, who think that the price will go up further. And at the bottom, on the contrary, it will buy them up, thus not letting the price fall and luring the others that the price will really go up.
Do not think that a big player buys and sells only on the borders of consolidation. If you go lower timeframe, then inside the "main" trading range, there may be small ones. Stopping and reversal of the price is done anywhere too, either on the edge or in the middle. The task of professional money is to distribute or accumulate the asset, not to draw beautiful sideways.
✴️ How to trade consolidation?
There are tons of trading systems that involve consolidation trading. Everything depends on your skills, experience and psychological type. Some people like to use indicators, although they themselves do not understand the principle of their work and essence, others like chart analysis, others like candlestick analysis.
If you want to trade understanding what you are doing and what the price is doing, then you should go to the Wyckoff method. The essence of the Wyckoff method is that you can determine in advance the stop of the trend, the formation of consolidation and the direction where the price is going to break out. This is not an easy task. Although nothing is easy in trading. In a sideways market, if my entry point matches a support or resistance level, it only strengthens the signal. It is possible and even necessary to trade back and forth, i.e. from one border to another. Just do not forget that the sideways trend does not last forever.
✴️ Conclusion
Now you know that consolidation is just a trading range where a major player gains or dumps its asset. A sideways is like a price rest after which a new movement begins. Consider flat as a bus stop, where the bus stops, lets out previous passengers and lets in new ones, and starts to move on to the next stop. Your job is to see that stop and take your seat on the bus.
Consolidation price movement in a narrow trading range, the boundaries of which are defined by support (below) and resistance (above) zones. If there is an imbalance, the price starts to rise or fall, then a trend is formed. The absence of a trend on the market is consolidation.
In any market, forex, stock market, cryptocurrency market or futures market there will always be these consolidations. A sidewall is necessary for the price to rest after a long movement, i.e. after a trend. In reality, this rest is caused by the presence of a big player in the market.
As much as you do not want it, a big player is present everywhere and always, that is how markets are organized. How do institutions work? A big player will buy up all the assets in the market to drive up the price later and sell them higher. It's like with monopolists. First, they drive their competitors out of the market and then they become one of a kind. How does all this relate to consolidation? All of us, are just ordinary, retail traders. We think differently than the big player. When you open buy or sell orders, the market won't even notice it, but when big players open position it will be visible immediately. Consolidation is necessary in order to gain the necessary volume without raising the price on the market.
For a market maker, consolidation is his trading range. It deliberately creates price borders within which it will work until it gains the necessary volume. At the top of the consolidation (resistance zone), the big player will sell, and at the bottom (support zone) it will buy. It makes no difference where the price comes out of the flat, in accumulation and distribution the boundaries work the same way. If a big player needs to unload (distribute, sell) his assets, let it be shares, he will sell them from the top to us retail traders, who think that the price will go up further. And at the bottom, on the contrary, it will buy them up, thus not letting the price fall and luring the others that the price will really go up.
Do not think that a big player buys and sells only on the borders of consolidation. If you go lower timeframe, then inside the "main" trading range, there may be small ones. Stopping and reversal of the price is done anywhere too, either on the edge or in the middle. The task of professional money is to distribute or accumulate the asset, not to draw beautiful sideways.
There are tons of trading systems that involve consolidation trading. Everything depends on your skills, experience and psychological type. Some people like to use indicators, although they themselves do not understand the principle of their work and essence, others like chart analysis, others like candlestick analysis.
If you want to trade understanding what you are doing and what the price is doing, then you should go to the Wyckoff method. The essence of the Wyckoff method is that you can determine in advance the stop of the trend, the formation of consolidation and the direction where the price is going to break out. This is not an easy task. Although nothing is easy in trading. In a sideways market, if my entry point matches a support or resistance level, it only strengthens the signal. It is possible and even necessary to trade back and forth, i.e. from one border to another. Just do not forget that the sideways trend does not last forever.
Now you know that consolidation is just a trading range where a major player gains or dumps its asset. A sideways is like a price rest after which a new movement begins. Consider flat as a bus stop, where the bus stops, lets out previous passengers and lets in new ones, and starts to move on to the next stop. Your job is to see that stop and take your seat on the bus.
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