Traders using indicators like moving averages who may well have been in a small amount of profit from the trend tend to lose it all back when the markets start consolidating.

The wild swings up and down make the moving averages cross one another many times leading the trader to take lots of false signals. Support and resistance, supply and demand, traders using these strategies can also suffer heavy losses as they try to predict when the swings are going to end.

The profit taking is what causes the preceding trend to stop moving either up or down in the first place. At some point the take profit orders that have come into the market from the institutional traders who were in profitable positions during the trend will consume all the additional orders coming into the market from the retail traders who were buying or selling at the top of the trend. The movement generated by the take profit orders overwhelming the retail traders orders will create the first structure in the consolidation.

If the market was in a uptrend before the consolidation began, then the first structure in the consolidation will be a down move. In the image above you can see how the take profit orders begin to enter the market at the top of the uptrend.

The first drop is small, and the market manages to make a new higher high, when the high gets broken a whole mass of take profit orders start entering the market, this is the second drop marked on the image.

Once the down-move is over and the market has begun moving back up to the top of the highs the lows of the down-move need to be marked with either an area or support level, if the market falls back to these lows its likely it will turn back in the other direction, but this is only if it is entering a consolidation, you would still not be certain at this point.

In a situation where a down-trend was taking place, the first component of the consolidation would be an up-move. The high of this the needs to be marked by you as a resistance level, if the market manages to return, this will be the point where its most likely to fall if the market is entering a consolidation phase. For a consolidation to form there at least needs to be one swing low and one swing high, the low and the high will form the support and resistance levels to which the rest of the consolidation will likely form.

The upper boundary is the resistance level, the most likely place for the market to turn back down if it returns. And the lower boundary is the support level where the market is most likely to turn back up if it returns. The upper boundary is the place where the market has the highest probability of moving lower back to the lower boundary due to the traders who sold up here wanting to defend their sell positions if the market returns.

At the lower boundary we have the traders who brought wanting to defend their trading positions, this means if the market falls back to this point its likely they will place additional buy trades to stop the market from falling below the lows. Reversal strategies such as supply and demand will put you at a disadvantage if you attempt to use them when the market is consolidating.

If the market is moving higher from the support level established at the bottom of the range and you see a demand zone form, for the market to return to that zone it needs to move lower, unless the move lower consists of a quick spike, possibly from a news release, its unlikely the market is going to return to the zone. Essentially their taking trades in the middle of the consolidation rather than the extremes of the consolidation at the upper and lower boundaries.

When you first identify the market has entered a consolidation, you should mark the upper and lower boundaries with horizontal lines. Notice how every time the market hit one of the boundaries it turned in the opposite direction, this is the professional traders defending their positions. The lower boundary has professional traders who brought protecting their buy trades while the upper boundary has traders who sold protecting their sell trades.

The best way to keep yourself out of bad trades when the markets consolidating is two split the consolidation into three parts. The middle of the consolidation can be found by drawing a Fibonacci retracement from the upper and lower boundaries or by using the cross-hair tool on MT4 to determine the overall range in terms of pips then halving it. Now you have marked the three sections marked your able to establish where the best locations are for placing trades.

If the market moves below the middle then you only want to be placing buy positions because the traders who brought creating the first swing up will want to protect their own buy trades. Another thing to take note of is how the consolidation in the image above contains a consolidation inside it. This smaller consolidation follows the same set of probabilities that are present in the larger consolidation.

Each trade you place should be exited when the market reaches the opposite boundary, if you place a buy trade when the market reaches the lower boundary you should be exiting your trade at the upper boundary, the point where your take some profit off your trade is when the market comes into contact with the middle line, When the market encounters the middle line the probabilities of the market turning in either direction are relatively equal, therefore its best to if take some profits off your trade in order to protect yourself in the event that the market begins moving against you.

So if you have a profitable trading strategy in place that is able to generate consistent profits during the rest of the year, you might want to consider reducing your profit targets or making changes to your strategy during the month of December because you could easily come unstuck in this quiet trading period. I myself tend to reduce my trading activity at the start of the month, and only take on the best high probability trades on the longer time frames, before stopping altogether once we get to around 15 December.

I will then slowly get back into the swing of things during the first or second full working week of the new year. It is your jobs as a forex trader to understand that trending market structure and once you start seeing price behaving differently from that, then start to question yourself if price is heading into a consolidation or not. In the chart above, notice that the swing highs and swing lows form the foundation for knowing that a market is trending and if the market is trending it will be making higher swing highs and higher swing lows in an uptrend and lower swing highs and lower lows in a downtrend.

Then on the middle section of the chart above, you see market starts to behave differently. It start making lower highs but not lower lows. Market consolidations are so prevalent in smaller timeframes but if you switch to trading in larger timeframe like that daily, you can avoid those price consolidations found in the smaller timeframes like the 4hr, 1hr and below. Skip to content Home Trading Forex What Is Consolidation in Forex Trading.

How do you predict a forex market consolidation? Are there any ways or techniques to predict forex market consolidations or not? Definition Of Price Consolidation What is price consolidation? You can say that the forex market is taking a rest before it continues trending.

So if the market is consolidating, it is very difficult for you to trade properly because: all trend trading strategies and systems will give you many false signals. if the consolidation continues and you did not realize what is happening, you can loose a large chunk of your forex trading account just trying to make money during market consolidations.

So how does a forex trader know that a consolidation is going to happen? Answer: impossible. If every trader knew when consolidation was going to start, they will all be filthy rich. Read: How to Start a Forex Trading Business.

Read: Can I Trade Forex With Td Ameritrade. Read: How to Trade Forex for Beginners Mt4. You May Also Like Best Online Forex Trading Platform in South Africa.

Advance Forex Trading Pdf Like Babypips. Can U Make Money With Forex Trading. George Soros Books on Forex Trading. Easily Trading Forex Higher Lmpact News Evehts.

Consolidations often known as ranges are some of the most challenging market conditions people face when trading the forex markets. Usually consolidations begin after there has been a long trend present in the market.

Traders using indicators like moving averages who may well have been in a small amount of profit from the trend tend to lose it all back when the markets start consolidating. The wild swings up and down make the moving averages cross one another many times leading the trader to take lots of false signals. Support and resistance, supply and demand, traders using these strategies can also suffer heavy losses as they try to predict when the swings are going to end.

The profit taking is what causes the preceding trend to stop moving either up or down in the first place. At some point the take profit orders that have come into the market from the institutional traders who were in profitable positions during the trend will consume all the additional orders coming into the market from the retail traders who were buying or selling at the top of the trend.

The movement generated by the take profit orders overwhelming the retail traders orders will create the first structure in the consolidation. If the market was in a uptrend before the consolidation began, then the first structure in the consolidation will be a down move. In the image above you can see how the take profit orders begin to enter the market at the top of the uptrend.

The first drop is small, and the market manages to make a new higher high, when the high gets broken a whole mass of take profit orders start entering the market, this is the second drop marked on the image.

Once the down-move is over and the market has begun moving back up to the top of the highs the lows of the down-move need to be marked with either an area or support level, if the market falls back to these lows its likely it will turn back in the other direction, but this is only if it is entering a consolidation, you would still not be certain at this point. In a situation where a down-trend was taking place, the first component of the consolidation would be an up-move.

The high of this the needs to be marked by you as a resistance level, if the market manages to return, this will be the point where its most likely to fall if the market is entering a consolidation phase. For a consolidation to form there at least needs to be one swing low and one swing high, the low and the high will form the support and resistance levels to which the rest of the consolidation will likely form.

The upper boundary is the resistance level, the most likely place for the market to turn back down if it returns. And the lower boundary is the support level where the market is most likely to turn back up if it returns.

The upper boundary is the place where the market has the highest probability of moving lower back to the lower boundary due to the traders who sold up here wanting to defend their sell positions if the market returns.

At the lower boundary we have the traders who brought wanting to defend their trading positions, this means if the market falls back to this point its likely they will place additional buy trades to stop the market from falling below the lows.

Reversal strategies such as supply and demand will put you at a disadvantage if you attempt to use them when the market is consolidating. If the market is moving higher from the support level established at the bottom of the range and you see a demand zone form, for the market to return to that zone it needs to move lower, unless the move lower consists of a quick spike, possibly from a news release, its unlikely the market is going to return to the zone.

Essentially their taking trades in the middle of the consolidation rather than the extremes of the consolidation at the upper and lower boundaries. When you first identify the market has entered a consolidation, you should mark the upper and lower boundaries with horizontal lines. Notice how every time the market hit one of the boundaries it turned in the opposite direction, this is the professional traders defending their positions. The lower boundary has professional traders who brought protecting their buy trades while the upper boundary has traders who sold protecting their sell trades.

The best way to keep yourself out of bad trades when the markets consolidating is two split the consolidation into three parts. The middle of the consolidation can be found by drawing a Fibonacci retracement from the upper and lower boundaries or by using the cross-hair tool on MT4 to determine the overall range in terms of pips then halving it.

Now you have marked the three sections marked your able to establish where the best locations are for placing trades. If the market moves below the middle then you only want to be placing buy positions because the traders who brought creating the first swing up will want to protect their own buy trades. Another thing to take note of is how the consolidation in the image above contains a consolidation inside it. This smaller consolidation follows the same set of probabilities that are present in the larger consolidation.

Each trade you place should be exited when the market reaches the opposite boundary, if you place a buy trade when the market reaches the lower boundary you should be exiting your trade at the upper boundary, the point where your take some profit off your trade is when the market comes into contact with the middle line, When the market encounters the middle line the probabilities of the market turning in either direction are relatively equal, therefore its best to if take some profits off your trade in order to protect yourself in the event that the market begins moving against you.

Consolidation can be very difficult to trade correctly, whilst its impossible to not lose on a couple of trades when the markets are in a consolidation the method described above is the best way to make sure your always placing the right trades in the right location. Hi Tim, I must say you are am amazing trader and instructor.

Your articles have really helped me and boosted by trading skills. I had serious issues with consolidating markets. But all my doubts are cleared. I used Demand and supply zones especially DBD and RBR and was losing most time. Since I read your articles on two Demand and Supply zones, I switched my strategy to only, DBR and RBD. Things have changed and am happy now. To nail it all, this lesson on consolidating market is an eye opener and remarkle way of trading ranging markets.

Thank you very much, God bless you and keep doing what you are doing. How can I buy some of your books to read and enrich my skills. Go to the homepage and subscribe with your email. You will receive an offer by the end of this year or next one. Your email address will not be published.

Save my name, email, and website in this browser for the next time I comment. Additional menu Home Strategies Technical Analysis Blog Forex Live Rates Consolidations often known as ranges are some of the most challenging market conditions people face when trading the forex markets. What Causes A Consolidation? A Consolidation is primarily caused by professional traders taking profits.

Two Sides To Every Consolidation For a consolidation to form there at least needs to be one swing low and one swing high, the low and the high will form the support and resistance levels to which the rest of the consolidation will likely form. I call these levels the upper and lower boundaries The upper boundary is the resistance level, the most likely place for the market to turn back down if it returns.

How To Trade Ranges Properly The majority of trading strategies available online are not suitable for trading consolidations. Establishing Probabilities When you first identify the market has entered a consolidation, you should mark the upper and lower boundaries with horizontal lines. The two boundaries upper and lower. And the middle.

Essentially we have a consolidation within a consolidation. Summary Consolidation can be very difficult to trade correctly, whilst its impossible to not lose on a couple of trades when the markets are in a consolidation the method described above is the best way to make sure your always placing the right trades in the right location.

Comments Hi Tim, I must say you are am amazing trader and instructor. Glad to hear that. Leave a Reply Cancel reply Your email address will not be published.

The 1 Risk Management Advice For Novice Traders? The following three concepts help you identify high probability breakouts during consolidations. Company News. You can say that the forex market is taking a rest before it continues trending. Things have changed and am happy now. Since I read your articles on two Demand and Supply zones, I switched my strategy to only, DBR and RBD. This content is blocked.

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