So I’ve been trying to figure out lately how to trade in every kind of market circumstances. I believe that there are 3 different sorts of tradable markets: up trending, down trending and consolidating markets. I swing trade with both up and down trending, while staying in the consolidation range for consolidated markets is the way to go. However, there is the last piece of puzzle still unsolved: the breakouts of consolidation.
How can I tell that this consolidation box is about to breakout and start trending? Thanks!
By the way, thank you all for helping me for the whole time. From a newbie knowing absolutely nothing about Forex, I am now making consistent profits since 2 months (15%+ per week) on a demo account. I know, its only a demo, but according to many, demo and live forex have only mental differences when trading, since live is with my own money. The rest is the same. I plan of opening a micro account once my semester ends, and am now looking my forex path with optimism.
If you want to get any good as trader you should go to charts and look for repeating patters yourself.
Traits differ per currency pair and time frame, but, anyway, from what i have observed:
For upside BOs (vica versa for downside):
the so called bear trap is common: price goes up to top of range, then it acts as if it unsure where to go and then starts going down, then not too far away there appears “hard” support and soon price decisively goes up breaking everything in its way without looking back.
On the other hand pullback to top of range are also very common. I remember guy called phantom onto other forum had epic thread about consolidation zone -> BO -> retrenchment -> BO of new high. He claimed this to be the single best place to enter. It doesn’t fit my style as i like to catch full move, but i have seen plenty of occasions where this works as well.
eur/usd is probably best pair to look for examples. I feel like other majors behave somewhat differently (i don’t see so clearly defined consolidation zones there as often as i do in eur/usd)
Unfortunately…there is no sure fire way to predict this HOWEVER, this may help.
Consolidation by its nature is a shrinking of volatility…the market is tightening for a move. Look at boll bands for a visual on this. Take your consolidation box…and add a buffer zone to its high and low…in other words do not trade for example 2 tics above or below…
instead add your spread for the trade (ex.3 tics)+ and a buffer (ex.5 tics) = 8 tics total.(required for true breakout). Once this is touched WITHOUT a breakout no longer increas the size of the box. Just wait for a breakout…set a stop and perhaps a target such as .618 or 1.00 height of the box to the breakout. These EXTRA tics will be more than made up by the expansion of the volatility…This is an example of something that has worked well for me in the past.
Having traded B.O’s for a good time now, i demarcate the consolidation region that is touched by all the tails
on the upside and the downside.
Any open and close outside the consolidation zone that follows the long term trend is an entry point.
My personal trick to find out the trend in the consolidation mode is to wait until your support or resistance break up with the consolidation if the pip is going to break the support with reasonable points then it will have a down trend as i have studied and this is same as for resistance… thanks
However, I don’t really understand what did you do to see that this is a breakout. Can you be a bit more specific please?
Thanks!
Well…this is quite easy.
A break below the the lower line(support) indicates that the bear trend may be on. right?
An open an close below the red line(support) with a bear candle confirms that the break is on.
Further, a retest of the support( now resistance) and failure to break above the level confirms that the bear
trend is on.
I have to disappoint you that making profits in a demo account is worthless and can guarantee you that you will not do so in your real account. You make it sound like the difference is so minor. I believe you will find out the hard way once you go live. The difference will make or break your forex career which is why only about 5 out of 1,000 actually make it. Either way, good luck with your account.
Whether or not the price will break the consolidation box and start trending, nobody knows. The market can always break the range and retrace into the range again anytime. We cannot control where the market will move, but we can control on how we trade it. Since all of us have our own way in trading, determining the start of a trend upon a breakout is also subjective. Therefore, it all depends on what’s in our trading plan. If your trading plan says that a convincing breakout can be identified when at least 1 candlestick closes outside of the consolidation box, then that’s how you should trade it.
Finally someone who does not dismiss other ideas because they do not fit with their trading style. We all have different strategies and as long as they are profitable others should not criticize them. I have met plenty of traders whose style I would never call my own, but they made their money so who am I to tell them they are wrong?
