Trading on price consolidation breakouts is a favorite choice among Forex traders. In this article, I will gift to you one of the most effective and simplest ways to trade consolidations.
What Is A Price Consolidation?
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Price consolidation occurs when there is no confident uptrend or downtrend in short-term time frames. Ranging markets are not considered to be consolidating because prices are still Ranging up and down. In a true consolidation, store prices don't fluctuate and typically stay within a 10 to 15 pip range.
What Time Frames Should I Trade?
Consolidating prices don't regularly last very long. That's why you'll regularly trade using intraday time frames (i.e. Hourly charts or slight charts). Occasionally, daily charts may show flat prices as well... But these are more the irregularity rather than the norm.
How Do I Trade It?
Most habitancy enter into a trade when prices break out of the top price (or bottom price) of the consolidation. If prices break upwards, they buy. If prices break downwards, they sell. The decision to trade on breakouts is based on the assumption that the momentum of the break will be strong sufficient to push price supplementary in the same direction.
How effective Is It To Trade Breakouts?
In my experience, breakout trading can yield rather consistent profits. This is because they regularly follow through. The hard part is choosing when to exit your trade once it's in-the-money, because breakouts sometimes reverse directions quite quickly.
What Should Be My profit Target?
Usually, a profit target of 30 pips is good enough. Sometimes, you may want to try for 50 pips. I don't regularly hold breakout trade positions after I'm in-the-money for 50 pips because then the price activity will regularly turn erratic.
Forex Trading education - How To Trade Price Consolidations
