Consolidation Phase

Consolidation is a congestion period (series of trading days in which no significant change in price occurs) that is most like a pause that allows market participants to re-evaluate the market and the environment which leads market price. Upon a breakout of a congested period, a build up of orders outside of the congested area may add to the size of the breakout move.

Resolution to a period of indecision or congestion often leads to a run in prices of various sizes. This is in fact a breakout of a congested period. It is important to examine periods of lower volatility when prices become congested in order to determine what may be a trigger point for prices breaking out of a congested area.

Trendlines are often used to help identify the trading ranges and may upon penetration, become an early warning that a breakout may be in process. The longer the period of congestion, the more possibility there is for a build up of orders and thus a larger potential surge in volume on a breakout.