Consolidation Failure Trading System

When there’s a good price movement (up or down) and suddenly prices stop moving, a consolidation area has been formed. Consolidation areas are composed by two lines that can be parallel or not. Prices oscillate between these lines, and can’t break these lines one way or another which reflects indecision.
For applying this strategy, we will use the Awesomeindicator or the MACD-Histogram so that we can confirmthe price behaviour. Both indicators work on this strategyand obey the same rules. I prefer to use the Awesome indicator because I find it more reliable on my favourite timeframes. If you trade on larger timeframes, you can also apply this strategy successfully with the MACD Histogram.To exit the position, we will use the same indicator again.
The Rules:
Buy a consolidation failure confirmed by the Awesome indicator or MACD-Histogram. Set your stop loss below therecent low. Exit the trade when your stop loss is reached or when the Awesome indicator gives you a sell signal above its centerline (0).
Short sell a consolidation failure confirmed by the Awesomeindicator or MACD-Histogram. Set your stop loss above the recent high. Exit the trade when your stop loss is reached or when the Awesome indicator gives you a buy signal below its centerline (0).
Check some examples so that you can fully understand this strategy.
Consolidation Failure Trading System
Entry: Buy GBP/USD at 1.7636
Stop Loss: Below the recent low
Exit: 1.7676
Profit: 40 pips
In this GBP/USD 15 minutes chart, you can see a consolidation area. This consolidation area appeared after a 120 pips drop.
In this example, we will use the Awesome indicator to confirm the trade. As you can see in the chart, you should place a buy order at 1.7636, when the price breaks above the consolidation
area and the Awesome indicator also confirms the trade. You should also place a stop loss order below the recent low.
After entering the trade, you should monitor the Awesome indicator until it gives us an exit signal. This happened at 1.7676 when the indicator turned red. It is now time to exit the trade with 40 pips profit.
Consolidation Failure Trading System
Entry: Buy GBP/USD at 1.7346
Stop Loss: Below the recent low
Exit: 1.7417
Profit: 71 pips
In this example you can see another great opportunity to make a good profit.
The two horizontal and parallel lines define the consolidation area. Prices are moving between the two lines but don’t have the strength to cross neither one nor the other. We continue to use the Awesome indicator, although you can use the MACD-Histogram as well.
You should place a buy order at 1.7346 when prices break above the consolidation area, and the movement is confirmed by the Awesome indicator. As you can see, the indicator is rising and, in this particular case, it is also below its centerline (0), which is a great confirmation. You should place a stop loss order just below the recent low. After entering the trade, you should see how the Awesome indicator behaves because that’s what will tell you when to exit the trade. At 1.7417, the Awesome indicator is above its centerline and just gave a sell signal. This means that it is time to exit this trade with 71 pips profit. This means $710 profit for each currency pair you’re holding. It’s a great profit for an intraday trade.
Consolidation Failure Trading System
Entry: Buy GBP/USD at 1.7285
Stop Loss: Below the recent low
Exit: 1.7388
Profit: 103 pips
As you can see in the chart above, you are going to enter a buy order just 1 pip above the higher horizontal line of the consolidation area, if the Awesome indicator confirms the trade. Following this strategy means that both factors – consolidation area breakout and trend confirmation on the Awesome indicator – have to be accomplished. If you don’t have them both pointing in the same direction, there is a chance that the breakout might be false. We had a buy signal at 1.7285. We now have to look at the Awesome indicator to see when it gives us a sell signal. This happens, as you can observe, at 1.7388 where the Awesome indicator turns red, above the centerline line. We closed this trade with 103 pips profit, $1030 in just a single currency pair. An intraday trade can’t get much better than this.
Consolidation Failure Trading System
Entry: Short GBP/USD at 1.7384
Stop Loss: Above the recent high
Exit: 1.7353
Profit: 31 pips
We are now looking at a different consolidation failure pattern. As you already know, the lines which form the consolidation area do not have to be parallel. As you can see in this chart, the two lines are converging, forming a triangle. You should draw the lines yourself, so that you can have a better idea of the price at which you will place your short sell order, if the Awesome indicator confirms the trade.
In this case, your short sell order should be filled at 1.7384 and you should put your stop loss just above the recent high. If you check the chart, you can easily see that your entry was when the price crossed below the consolidation area, and the Awesome indicator was confirming the trade. Now, by looking at the Awesome indicator, we are going to track a good point to exit the position. This happens when the Awesome indicator, which is below the centerline, turns green. You should exit this position at 1.7353, with 31 pips profit.
Consolidation Failure Trading System
Entry: Short GBP/USD at 1.8887
Stop Loss: Above the recent high
Exit: 1.8712
Profit: 175 pips
In this GBP/USD 1 hour chart, there is a clear consolidation area. This consolidation area represents indecision. As we don’t know for sure where prices will flow, we look at the Awesome indicator. As you can observe, in this case, you will enter a short sell order at 1.8887. This price reflects the breakdown of the consolidation confirmed by the Awesome indicator. You should place your stop loss order just above the recent high. After entering the trade, you should wait for a sell signal on the Awesome indicator. As you can see, when prices hit 1.8712, the indicator turns green, and is below its centerline. It is time to book your profits and look for another opportunity. This was a great trade.

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