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Chapter 8: Consolidation Patterns; The Sideways Pause

  • Michael C. Thomsett
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Practical Trend Analysis
This chapter is in the book Practical Trend Analysis

Abstract

The technical term consolidation has a specific meaning: a sideways pattern of price movement within a limited breadth of trading in which neither buyers or sellers can move price to any significant degree. This period of indecision is a third type of trend in addition to the uptrend and downtrend. Consolidation trends take up as much time as uptrends and downtrends on many charts. However, with the focus of traders on dynamic price moves, consolidation often is ignored or discounted. A problem for analysts is in finding a clear signal that consolidation is coming to an end. Any valid signal must be located within the context of an uptrend or a downtrend; the only way to spot the end of consolidation is through identification of a successful breakout. Confusion is created by a widespread mixing of terms. Many books, articles, and online references consider consolidation an alternative term for continuation, but this is not accurate. A continuation signal often involves the shape, size, and momentum found within the trading range. For example, triangles, flags, and pennants are continuation signals that also contain consolidation of price represented by a narrowing of the range.

Abstract

The technical term consolidation has a specific meaning: a sideways pattern of price movement within a limited breadth of trading in which neither buyers or sellers can move price to any significant degree. This period of indecision is a third type of trend in addition to the uptrend and downtrend. Consolidation trends take up as much time as uptrends and downtrends on many charts. However, with the focus of traders on dynamic price moves, consolidation often is ignored or discounted. A problem for analysts is in finding a clear signal that consolidation is coming to an end. Any valid signal must be located within the context of an uptrend or a downtrend; the only way to spot the end of consolidation is through identification of a successful breakout. Confusion is created by a widespread mixing of terms. Many books, articles, and online references consider consolidation an alternative term for continuation, but this is not accurate. A continuation signal often involves the shape, size, and momentum found within the trading range. For example, triangles, flags, and pennants are continuation signals that also contain consolidation of price represented by a narrowing of the range.

Chapters in this book

  1. Frontmatter i
  2. Contents v
  3. Introduction to the Second Edition: The Basic Problem with Numbers xi
  4. Chapter 1: The Theory of Trends: Dow, EMH, and RMH in Context 1
  5. Chapter 2: Statistically Speaking: Trends by the Numbers 25
  6. Chapter 3: Resistance and Support: A Trend’s Moment of Truth 53
  7. Chapter 4: Trendlines and Channel Lines: The Shape of Things to Come 73
  8. Chapter 5: Reversal Patterns: End of the Trend 95
  9. Chapter 6: Continuation Patterns: A Bend in the Trend 135
  10. Chapter 7: Confirmation Signals: Turning the Odds in Your Favor 163
  11. Chapter 8: Consolidation Patterns; The Sideways Pause 183
  12. Chapter 9: Volume Signals: Tracking Price Trends 201
  13. Chapter 10: Mind the Gap: When Price Jumps Signal Change 223
  14. Chapter 11: Moving Averages: Order in the Change 241
  15. Chapter 12: Momentum Oscillators: Duration and Speed of a Trend 257
  16. Chapter 13: Volatility: Marking Risk within the Trend 271
  17. Chapter 14: Fundamentals: Connecting the Two Sides 285
  18. Chapter 15: Overview: Putting It All Together 305
  19. Bibliography 319
  20. Index 323
https://doi.org/10.1515/9781547401086-008

Chapters in this book

  1. Frontmatter i
  2. Contents v
  3. Introduction to the Second Edition: The Basic Problem with Numbers xi
  4. Chapter 1: The Theory of Trends: Dow, EMH, and RMH in Context 1
  5. Chapter 2: Statistically Speaking: Trends by the Numbers 25
  6. Chapter 3: Resistance and Support: A Trend’s Moment of Truth 53
  7. Chapter 4: Trendlines and Channel Lines: The Shape of Things to Come 73
  8. Chapter 5: Reversal Patterns: End of the Trend 95
  9. Chapter 6: Continuation Patterns: A Bend in the Trend 135
  10. Chapter 7: Confirmation Signals: Turning the Odds in Your Favor 163
  11. Chapter 8: Consolidation Patterns; The Sideways Pause 183
  12. Chapter 9: Volume Signals: Tracking Price Trends 201
  13. Chapter 10: Mind the Gap: When Price Jumps Signal Change 223
  14. Chapter 11: Moving Averages: Order in the Change 241
  15. Chapter 12: Momentum Oscillators: Duration and Speed of a Trend 257
  16. Chapter 13: Volatility: Marking Risk within the Trend 271
  17. Chapter 14: Fundamentals: Connecting the Two Sides 285
  18. Chapter 15: Overview: Putting It All Together 305
  19. Bibliography 319
  20. Index 323
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