Whenever it seems that things aren't making sense and you can't make heads or tails of what PA is doing, it's usually because it's in a consolidation. Some studies have found that prices spend almost 70-90% of the time in consolidation and not trending. Most amateur traders lose most of their money trying to trade the consolidation, zigging when prices are zagging and zagging when prices are zigging. Sound familiar? Wondering why every time you think you are catching a trend, it turns on you all of a sudden? That's why. You're trying to catch a trend when there isn't any. Normal trend trading techniques don't work well during consolidation.
The trick is to recognize as early as you can that prices are in consolidation phase and use consolidation trading techniques or DON'T TRADE and just wait for the breakout.
SO WHAT'S HAPPENING NOW?
By my wave count, we are currently in a wave 2 consolidation and probably will stay that way for the rest of today (Friday) and maybe into Monday's session. So what kind of consolidation is it? Wave 2's have a tendency towards patterns retracing anywhere from 38.2 - 100% of wave 1. If it's a shallow retracement (say between 23.6 - 50%), then the resuming trend tends to be quite strong. That's more or less what I am expecting. When the trend up continues, we will be seeing a wave 3.
As of this posting, there are 2 ways I see prices unfolding:
1. a ABDCE contracting (blue) of which the A leg has already reached the 38.2% retrace and if this scenario holds, prices should not go any deeper. As of this post, prices could've already formed the C point and is now working on the D point of the triangle with the E point after that. When prices reach the E point, that would a good time to buy. But must wait and let the triangle fully develop. If prices were to break the lower of this triangle, then look to this next scenario.....
2. an (5-3-5) pattern (red). There is also a POTENTIAL Perfect . Now this , should it be filled would negate the . So it will be easy to to see that this would be the correct unfolding of wave 2. The would also contain the (5-3-5) pattern
Either way, I will NOT be trading either one of the above patterns until one or the other is finished. I wail only be looking for the end of either pattern and looking to catch the beginning of the wave 3 up. I would STRONGLY advise against anyone trying to trade this consolidation as I believe it will be shallow and could breakout to the upside without completing either pattern. So if you were short trying to catch for example the wave (c) down of the , you could get caught on the wrong side when wave 3 begins. So why take the risk when the prize for patience will be a wave 3?
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