TRENDING & CONSOLIDATING-A LOGICAL aproach to trading any markets.

First I want to give a few recommendations:

1. Trade ONLY what you see in the charts.

2. Do not make forecasts or predictions because you will make mistakes based on this predictions.

3. Don't employ a wishfull thinking in trading because you will make mistakes and lose money.

Ok, now, if you take a good look at your charts you will see that the price is doing only two things:

1. TRENDING and 2. CONSOLIDATING.

TRENDING

The price is trending (moving) from an important level to another important level. This important levels are levels of support and resistance. This important levels can be demand and supply levels. We can spot this levels in intraday charts (5-15-30 minutes and 1 hr) or in the daily charts (4-5-8-12 hrs and daily) and weekly and monthly charts.

The price does not trend in a straight line. After trending, the price will certainly consolidate.

CONSOLIDATION

After trending, moving between two important technical levels, the price will start to consolidate. After the consolidation the price cand do two things, to resume the move in the original direction or to revers.

If the price will resume the original move, the consolidation area will become a CONTINUATION PATTERN, which can be a flag (bullish/bearish) or a triangle (wedge).

If the price will reverse, the consolidation will become/creat a reversal pattern (double/triple tops/bottoms, head and shoulder, the 123 pattern).

Weh the price escape from the consolidation area it means the price is BREAKING OUT of that area.

So, ALL CONTINUATIONS of movements AND ALL REVERSAL of movements START WITH A BREAKOUT from that area!!!

I always say trading is simple but not easy.

Now, in the pictures below, I will show you with charts what I have told you above.

EURUSD-intraday-trading and consolidating and BREAKOUT FROM CONSOLIDATING AREA:

1. FIRST WE IDENTIFIE THE CONSOLIDATION AREA. For this we use the line charts

After the Line chart we turn the chart to candlestick:

Because the price, before entering into the descending triangle consolidation area, have come from "above", from a higher level (1.389-1.38) we can call this descending triangle a CONTINUATION PATTERN.

We enter into the breakout when the coresponding candlestick closes below our support line.

Now, the breakouts are very important. We can trade the breakouts not only from the consolidation areas but also breakouts from trend lines.

Please read my blog about breakouts: http://www.forexstreet.net/profiles/blogs/holly-grail-of-forex-holl...

Views: 460

Tags: EURUSD, breakouts, candlestick, consolidating, daologic, line, patterns, trend, trending

Comment by Daologic on January 31, 2014 at 8:48am

IMPORTANT UPDATE: How to corectly trade the news!!!

Now, most of the news reflect fundamental datas. Important news reflect important fundamental data.

Lately the market is fundamentaly driven more than technical driven. The important news will move the markets more than the not so important news.

If the price is in a consolidation area and the IMPORTANT NEWS (GDP, NFP, FOMC, CPI, MPI, etc) is suporting one of the currency of the currency pair, TRADE ONLY WHEN THE PRICE BREAKOUT from the consolidation area, not before!

Comment by George Sofianos on January 31, 2014 at 6:45pm

Appreciations for these simple but very important rules

Comment by talisman on January 31, 2014 at 8:13pm

good article on some basics.  heres what that info looks like when you put it into practice.  my guidelines are similar but unique to me .  my definition of consolidation is slightly different, consistency is a key point . in the same situation you should always see the same thing.  the trade I show can be picked apart if you really want to, but it is a good real world example of the principles you speak of in action. Thanks for posting dao 

Comment by Scott Martin on February 1, 2014 at 12:26am

Thanks for sharing, much appreciated.

Comment by Daologic on February 3, 2014 at 10:51am

GBPUSD 1H line and candlestick charts that show very clearly that the price is only TRADING & CONSOLIDATING.

There is no secret. Price action is easy to understand, from this simple and logical perspective.

Comment by talisman on February 3, 2014 at 5:06pm

Price action is easy to understand.  In my example here I would say a large amount of people would identify this trade set up, but after correctly identifying it very few would trade it profitably.  with hind sight bias its extremely obvious, but even at the time many people would have numerous signals using many different methods telling them to enter.  so if so many of us can identify patterns and other things why do so few trade profitably ( some say as few as 5 percent of people trade profitably )?  The answer lies embedded in a true understanding of ourselves. 

Comment by talisman on February 3, 2014 at 5:09pm

I would add as well I just put those lines on my chart to show what a lovely consolidation breakout trade it is to relate it to this post, but in reality I never originally drew those lines and that is not why I entered.  yet another clue for the clueless

Comment by Daologic on February 3, 2014 at 5:23pm

talisman, thanks for your comment.

Now, as I understand, trading is a pshychologic game, I mean psychology has an important role .

At the top and the beginning of this post I have given some recommendation and recommendation number 2 is :"Do not make forecasts or predictions because you will make mistakes based on this predictions." I have strenghtened this rule with rule 3: " Don't employ a wishfull thinking in trading because you will make mistakes and lose money."

Why I did this? Very simple. When we make predictions based on whishfull thinking we in fact CREAT an IDEEA, about how and in which direction to trade. Because this ideea is ours we will love this ideea and try to protect this ideea as our own child and this ideea will give us a bias toward the direction imposed by this ideea. And because we don't like to be wrong we will try to adapt the reality to our own ideea which is not reality but phantasie. This will make us confused and this ideea will filter our reading of market and we will not translate this readings into a good signal. This is why is very important to trade only what we see in the charts and this is why most of the traders lose money. As logical beings we must filter all market information/signals and take the decision to trade or not and how  to trade. If we have a preconception based on our own predictions we will make mistakes and lose money. This is why I call trading a psychological game.

Comment by talisman on February 3, 2014 at 6:07pm

you MUST form a directional bias in order to trade profitably.  you just cant be married to it.  when you enter a trade you enter believing the market will move your way ( at least that's why i enter ) with greater probability than it will move against you.  Being right or wrong on any individual trade is not important. Wishful thinking ( or any other emotion based variable ) is mitigated by creating objective guidelines.  Freedom can only be fully exploited by creating boundaries.  This reality is the nemesis of the 95 percent, the variable they either don't consider at all or discount to the point of ineffectiveness.

Comment by Daologic on February 3, 2014 at 6:15pm

Yes talisman, but a directional bias based on what the charts is telling us, not based on whishfull thinking.

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