joshdonoghoe
Education

HOW TO TRADE CONSOLIDATION

FX_IDC:EURGBP   Euro / British Pound
The short answer: DONT.
I've decided to use EUR/GBP today as a prime example of when to sit on the sidelines and not risk a cent of your capital. As you can see, the past 7 weeks have been an absolute mess with price looking very indecisive and all over the place. This means that traders are not able to come to a consensus of whether they are bullish or bearish on this particular pair. Now remember when you are trading you want to be able to identify and execute your trades where there is likely to be a large amount of buy/sell orders (particularly 'smart money' orders however this is a lesson in itself) and if price is just moving sideways, how exactly will you be able to do that? The answer is most likely you most likely will not be able to. The trick with trading consolidation is being able to stay patient and let the masses fight over a measly amount of pips while waiting for the market to show you the direction it is heading next. You will be able to identify this when price clearly breaks the current consolidation either to the upside or downside. When this happens after a long period of consolidation, you might notice it does this with tremendous strength (I like to picture this as the market 'coiling' up before releasing its stored energy to either the bull or bear side). Now the question you should be asking yourself after that point is ''How can I now take advantage of this potentially newly formed trend?''. Instead of just getting long or short as hell after seeing a breakout, I like a little more confirmation before putting any of my capital at risk. This usually comes in the form of a pullback to the first potential lower high/higher low after the breakout has occurred and this is usually where I look to place an entry if my strategy signals to do so.

Hope you were able to take some value from this mini lesson, let me know in the comments or PM me if you want more short lessons similar to this!

Have a great trading week.

Comments

Some really good points in here, particularly around supply/demand areas, staying patient, and waiting for confirmation.

I don't see many traders promoting those ideas. Nice work.
Reply
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