A sharp movement above or below the support or resistance area. When validated it indicates a strong and fast move in the direction price broke through. Breakouts are great to spot when using the rectangle tool to box in price while it is consolidating.
An extended range where price is between two levels moving sideways.
Short for “False Breakout” it is the occurrence of price moving out of a support or resistance only to return. This move targets impatient traders to jump into positions.
When price retraces in the opposite direction of the overall trend. It’s a quick pause in the overall trend before eventually continuing in the original trend.
A level where price bounces off of, also known as the ceiling. It works hand in hand with Support as it is the opposite but it does the same thing.
A level where price continues to bounce off of, also known as the floor. It works hand in hand with Resistance.
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(Breakout, Retest, Continuation)
Consolidation is an area of traders’ indecisiveness between buyers and sellers in the market. You can find that price tends to consolidate at the end of a trend and can last hours, days, and weeks if it is awaiting major news to break out.
Waiting for price to breakout and retest consolidation is imperative because you don’t want to get trapped along with other buyers and sellers in the market. You want to wait for a strong push into one direction to break that area and retest.
What some traders do once they see price coming back into that area for the retest, is automatically jump into the trade assuming price is going to return in the direction of the breakout. You must be careful not to jump the gun because it can sometimes be a fakeout, and price can return back into consolidation and hit your stop loss. A patient trader will wait to enter after price passes the point it reached during the initial breakout.
In the illustration below, you will see why using a consolidation box can be beneficial in your entries. Here’s how:
Here is a different example of how to properly enter a trade once price breaks a key level:
Even though it’s best to be patient, you may find traders who enjoy trading a sideways market. Often, these traders tend to scalp as price bounces back and forth between support and resistance. The important thing to remember is to pay attention to the charts when doing so, as price could very well breakout as previously shown.