As traders, confidence is key. Confidence comes into play when we must decide whether or not to enter a trade. More importantly, we must be confident when determining how to manage that trade. How long to hold, when to sell and how to properly manage the risk. One thing that often causes traders to make a wrong move and miss out on potential profits is market consolidation.
What is Market Consolidation?
Market consolidation, occurs when a market’s price moves within a well-defined pattern or barrier of trading levels. This “sideways movement” creates a period of indecision that ends when the price of an asset breaks beyond the restrictive barriers. Market consolidation can create high levels of volatility for traders who can’t foresee what is next. However, this opens the door to opportunity for short-term traders who know how to identify the difference between market consolidation and a true trend reversal. Traders with the right tools that can forecast market direction and strength, such as VantagePoint, can differentiate the two to make smarter decisions in the market. Sign up for a free demonstration of VantagePoint today.
How is Market Consolidation Reflected on a Chart?
Looking at the VantagePoint charts below you will notice a blue line and a black line. The blue line represents a proprietary predicted moving average and the black line is a standard moving average. The closer those lines become, the higher the probability we are experiencing consolidation in the market.
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