In the previous sections, Mr. Bankerse explained to you the concept of Reversing the Trend and in particular the figures double maximum and double minimum and the figure head and shoulders.
Mr Bank now wants to complete our journey in the first part of the Technical Analysis with the last piece: the consolidation figures !
The consolidation figures
The consolidation figures identify a phase of the market where there is no clear upward or downward trend: the value of the stock tends instead to be confined to a certain range, as if we were facing a pause for reflection on the part of investors.
So it often happens that in these market phases the exchanges are low. Conversely, the breakup of a consolidation figure generally leads to a clear affirmation of a new trend, bullish or bearish, with much higher volumes.
The main figures that we will see below are:
- The rectangles
- The triangles (symmetrical, ascending, descending)
- Flags (“flags”)
The figure of the rectangle is the one that probably best represents a phase of “reflection” of the market: the value of the stock remains confined, for a longer or shorter period, between a static support and a resistance, as in the figure:
Once a figure of this type has been identified, it will therefore be possible to think of buying when the value is close to the support and then reselling in correspondence of the resistance, until the moment of breaking the figure. Overcoming resistance or support generally leads to a strong affirmation of the new trend.
In the case of the triangle, unlike the rectangle, the range of oscillation of the stock tends to shrink.
In the figure below we see the case of the symmetrical triangle :
In this case, the oscillations are reduced both due to the effect of lowering the maximums and raising the minimums. Assuming what the trend will be at the exit of the triangle is not trivial, and it is necessary to evaluate the figure also by virtue of the trend of the stock over a wider time interval.
In the descending triangle, instead, it is only the level of the maxima that tends to fall, while the minimum remains on constant values, as in the figure below:
A bearish trend should therefore be established at the exit.
In a similar but inverse manner, the bullish triangle is outlined.
Finally, the flag is a rectangular figure that outlines a secondary trend that is inverse with respect to the main one, as shown:
.. and with this last figure Mr Bankerse concluded the roundup on the first part of the Technical Analysis.
Now we can move on to analyze what are the indicators and oscillators in trading.
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