Forex Price Action Basics - Lesson 9: Consolidation Patterns


Previous lesson, Forex Reversal Patterns...


This lesson will cover consolidation patterns. Many Forex traders that use price action analysis aim to identify specific patterns created by price. Usually these patterns signal a price reversal (trend reversal) or predict when markets are going to rally. In this lesson, we will teach about consolidation patterns. Reversal patterns usually signal a price reversal within the Forex markets, consolidation patterns usually signal a price rally within the Forex markets.

Forex Consolidation Patterns


Consolidation patterns usually form when price is quiet. They usually appear just before large price movements. Those that trade Forex consolidation patterns, usually 'trade the calm, in anticipation of the storm'. Most consolidation patterns are triangular - showing a price "squeeze" before the potential price "pop".


Symmetrical Triangles


As the name suggests, symmetrical triangles are when price forms a symmetrical triangle within the Forex market. As with most consolidation patterns, the area of price movement becomes tighter and tighter. Eventually price will break the pattern formation and can move strongly in the direction of the break. Below are some screenshots of real price charts that demostrate this...























Do you notice how price is moving between 2 diagonal support and resistance levels that are "squeezing" price? When price eventually comes out of the triangular consolidation, price moves strongly in that direction.


Below is another example...














Below is an example of a symmetrical triangle with an upside (bullish) break...















Descending Triangles


There are other triangular Forex price patterns too. The symmetrical triangle pattern is very much a sideways consolidation pattern, there are upwards (bullish) and downwards (bearish) triangle price patterns too. These are referred to as ascending and descending triangles (some of these formations are also referred to a wedges). The trading principle is the same; price is consolidating, when price closes out of the pattern (breaks-out), price could move strongly in that direction.


Below are some price chart screen shots of Forex descending and ascending triangle price patterns...
































Ascending Triangles





























Ranging Markets


Ranging markets are also consolidation patterns - price is moving between 2 areas of support and resistance. When price breaks-out, the consolidation can be over and price can move strongly in the direction of the break-out. To learn about Forex ranging markets, please visit our Forex ranging markets page

Watch this lesson in Video...

There is a very high degree of risk involved in trading.Past results are not indicative of future returns. Technical Forex and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice.Information for forex trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of Technical Forex may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies. Trading Forex, Options on Forex, and any retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time. Technical Forex is not an investment advisory service, is not an investment adviser, and does not provide personalized financial advice or act as a financial advisor. Technical Forex exists for educational purposes only, and the materials and information continued herein are for general informational purposes only. None of the information provided in the website is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement, recommendation or sponsorship of any company, security, or fund. The information on the website should not be relied upon for purposes of transacting securities or other investments. You hereby understand and agree that Technical Forex does not offer or provide tax, legal or investment advice and that you are responsible for consulting tax, legal, or financial professionals before acting on any information provided herein.

Technical Forex is dedicated to providing high quality content on Forex technical analysis -