Thursday, March 24, 2011

Learning About The Art Of Trading - The Easy Way To Trade In A Consolidation Or Congestion Phase

By Bobby Zamora

When stock costs begin to move inside a certain range, falling to established lows and then bouncing back up to established highs and fall back again, the stocks are alleged to be in a consolidation or congested phase.

Much of the time, standard consolidation patterns can be seen, with the commonest one being the rectangle pattern or often called a price "corridor" or channel.

When costs begin to drop, traders get scared and puny holders will sell their stocks so they will fall to a support level which other traders will consider a fair price to purchase. From that level, stock costs will then rebound, frequently 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 prices and the peak prices where the price tops over, you will 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 use of oscillators will be appropriate 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 modern traders commit is to use their trend following trading methodology in a congested phase and encounter plenty of whipsaws as prices oscillate between a tiny 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.

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