Directional trend movement is a favorite market condition for many traders. Driven by fundamental factors, the price goes up or down, traders can only wait until the market becomes saturated with buyers or sellers and the price turns around. At some point, the price fully plays out the expectations of investors and stops in a narrow corridor called the equilibrium state. Lateral price movement – flat, market sinking and decline in trading activity – Forex consolidation.
What is Forex consolidation
Consolidation means that the demand for an asset is almost equal to the supply. Traders are waiting, not taking decisive action. Most often, Forex consolidation appears just before the news release, before the weekend (holidays) and after the market “calms down” after reacting to a fundamental factor.
Types of consolidation:
- side (flat). It has a narrow corridor of 20-30 points, it is difficult to earn on it because of the spread;
- downward. At this point, traders are trying to take profits in order to reduce risks;
- ascending. Appears when traders are satisfied with the rising price and fix positions.
Forex consolidation is clearly visible on higher timeframes starting from H1.
How to make money on Forex consolidation:
- exit from the consolidation zone is viewed by traders as opening a position in the direction of a trend. It happens that the price breaks both boundaries of the channel (the main trend and correction). If the rules of risk management are observed, the problem of triggering stops on corrections is excluded;
- on a downward or ascending consolidation, support and resistance levels are drawn, with a rebound from which a position is opened. You can use additional basic channel indicators;
- entering the consolidation zone may be perceived as a signal to close positions and switch attention to other markets.
Also on the Internet you can download indicators that work exclusively in consolidated markets. An example of the indicator is Consolidation Breakout. He tells the trader not only the position opening points, but also the stop loss setting levels. The work of trading advisors in the flat is not very stable, therefore it is recommended to stop them at the time of market decline.
Share your flat trading strategies in the comments!