Consolidation and Breakouts

I'm going to try to switch between beginner guides and more advance guides between posts.. or just do whatever I feel like. But i think if i just start writing beginner guides all the time, I'm gonna start going crazy..

Consolidations - when prices aren't really going anywhere. It's just bouncing around within a certain price range. You can also call these Ranges, but who cares what they're called.. just gotta know what they look like.

Exhibit #1


Exhibit #2




.. and these consolidations are almost always followed by a Breakout



Now market behavior, especially in vary volatile currency pairs or even stocks, cycle between these two typical behaviors. They Consolidate and Breakout.. consolidate and breakout.. consolidate and breakout..



Price breaks out to a new territory and then takes a break and rests for a while. Then it breaks out again. Couple things you can imagine is that while the price is consolidating.. investors, traders, speculators whatever you want to call them are placing their bets... Some think it's going to break UP and.... some think it's going to break DOWN.

Lets pretend after a consolidation the price broke down...

The traders who bet it was going down is saying YES and they sell more.. or do nothing..

AND the traders who bet the price was going up is saying SHIZAS! Hell NO... and what do they do? Well they have to sell out of their positions, or risk losing even more money.

There is a double selling effect that's pushing the price down... there are a LOT of sellers at this time.. much more than buyers.. and if you are buying at this time, you sir, should not be trading

This isn't the only reason why the market is going down, but it sure is a big one.

Now how do you make money from this information? Trade consolidations and make sure you're one the right end when it breaks, lol. I'll see if i can make another article sometime in the future and put some strategies to effectively trade this beast.