One of the most useful tools employed by experienced Forex traders is price consolidation breakouts. Consolidation occurs during a period of indecision which ends when the price of the asset breaks beyond the restrictive barriers. Periods of consolidation can be found in charts covering any time interval and these periods can last for minutes, days, months or even years. In times of true consolidation, market prices won’t fluctuate at all.
Price consolidation in Forex occurs when there is no obvious uptrend or downtrend in short-term time frames. During a ranging market, prices are still fluctuating up and down and so are not considered to be consolidating. During true price consolidation, prices will normally stay within a 10 to 15 pip range.
During consolidation, the levels of resistance and support are designated by the upper and lower limits of the stock’s price. Volatility increases when the price of the asset breaks through the identified areas of support or resistance. At that point, the opportunity for short-term traders to generate a profit also increases. Novice Forex traders should learn strategies from experienced traders, you can find them on forex brokers review.
A popular mode of trading is entering a trade when prices break out of the highest or lowest price of the consolidation. When the price breaks up, a trader will enter a buy order; when the price breaks downwards, he/she will enter a sell order. Trading on breakouts assumes that the momentum of the break is solid enough to continue the movement in the same direction. The difficulty results from deciding when to exit a trade once it is in the money, as sometimes breakouts reverse directions rapidly. A good rule of thumb is to wait for a profit of 30 pips and then pull out. Some traders wait till they reach 50 pips but this is taking extra risk.