Consolidation
Consolidation is a period where price trades sideways within a defined range after a significant move. During consolidation, the market digests gains or losses, and neither buyers nor sellers dominate. It often precedes a continuation of the prior trend.
Understanding the Concept
• Volume typically decreases during consolidation • Can form patterns like rectangles, triangles, or flags • Breakout direction determines the next major move • Longer consolidations often lead to bigger subsequent moves
Real-World Example
Tesla stock rallies 50% over two months, then trades between $240-$260 for six weeks. Daily moves shrink to 1-2%. Volume drops to half the average. This consolidation allows the stock to build a base before the next leg higher. Eventually, it breaks above $260 and rallies another 30%.
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