When stock costs begin to move inside a certain range, falling to established lows and then springing back up to established highs and fall back again, the stocks are claimed 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 cost of the stock improves and increases, it’ll reach a top where traders who’ve purchased the stock at lower costs will sell. At the exact same time, puny holders who’ve bought the stock at higher costs may want to bail out as their losses are narrowed with the improved costs. At this point in time, resistance is faced and the share price then tops over to form a top.
When you connect the support costs and the top costs where the price tops over, you’ll find the pattern of a channel or a rectangle.
During consolidation phases, costs trade inside a range formed by the bottom of the channel or rectangle and the apex of the rectangle or channel.
Technically, the utilization of oscillators will be OK for trading inside congestion phases. The secret’s to identify the base of the channel and to buy nearer to the base of the channel and to sell as costs reaches the pinnacle of the channel or rectangle.
A typical mistake more recent traders commit is to use their trend following trading program in a congested phase and encounter a large amount of whipsaws as costs oscillate between a tiny range.
When you transit from a bullish market and moves into a bearish market, be delighted with smaller gains which come from trading the congested and consolidation phases. Fall back on oscillators to trace your stock costs and trade them re their location in the price rectangle pattern you can simply identify in your stock chart.
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