| Trends
vs. Consolidation within a Market
 One
of the best ways to identify if a market is trending,
or shows the capability of trending, is to visually
scan the chart to determine the following (Over a 5
to 7 candle (session) range):
1.
If the white candles out number the black candles.
2. If the black candles out number the white candles.
3. If the number of black and white candles are about
even.
If
the white candles out number the black candles, youre
seeing a bullish trend.
If the black candles out number the white candles, youre
seeing a bearish trend.
If the white and black candles are about even in number,
youre seeing consolidation.
Ideally, investors should look for and trade markets
that exhibit good trending capability. There is almost
no opportunity to profit while trading a market that
is consolidating (unless the market breaks out of the
consolidation with a big rally or sell-off). Ive seen
investment strategies where investors buy (or sell)
a market while it is consolidating with the concept
that the market will breakout of the consolidation at
some point. Sometimes these theories work well, other
times they dont. I suggest investors try to identify
markets that trend for trading. If the market does not
trend up and down, then there is little chance of trading
effectively.
When
any market enters a trending phase, investors should
rely upon the candlestick patterns, good protective
stop loss methods and the other breakout systems included
within the PFP software application for trading signals.
When
any market enters a consolidation phase, investors should
really study the chart and wait for the optimal signals
before investing in the market. The breakout systems,
any type of protective stop loss system and even the
candlesticks cant effectively trade a consolidating
trend. A word of warning, extended consolidation within
a market can be very costly to short term investors
because the whip-saw activity of the market price will
likely generate loss after loss before the market exits
the congestion band. It is better to look for another
market to trade and just keep you eye on the market
that is congesting.
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