• Options Course
  • High Level Options
  • Privacy Policy
  • Terms of Use
  • Cookies
  • Financial Disclosure
How to Trade Options » STOCK CHART ANALYSIS » Price Consolidation

Price Consolidation

Never Underestimate the Importance of Price Consolidation

One of my favourite trading strategies is waiting for breakouts from price consolidation. The term “consolidation” refers to a sideways movement of price action within a narrow range for at least 5 days.

Price consolidation often occurs around support and resistance points and once breached, can form one of the most validating indicators that you should enter a trade. But price consolidation can also occur anywhere on a chart. The general rule is, that the longer the period of consolidation, the stronger the move once there is a breakout.

The biggest challenge when waiting for entry signals out of price consolidation, is having the patience to wait for them. When a stock price touches a trendline, your immediate urge is to buy call or put options depending on whether the stock has reached support or resistance and therefore, the direction of anticipated reversal. But I can say from past experience as a novice trader, that I have been burned a number of times as I have watched the price go sideways for a few days and then continue onwards instead of reversing. Having entered an option position, I watched my option contract suffer from a decrease in implied volatility while the price of the underlying consolidated and then fell even more once the breakout in the wrong direction occurred.

I have learned my lesson.

I can’t over emphasise how valuable this simple observation is. Kim Reilly’s DVD Home Study course contains some specific rules and insights on a great little indicator called “Bollinger Bands”. These are like a support and resistance line that wraps around the price movements on a stock chart. Bollinger Bands also measure price volatility over a given timeframe and provide excellent validation for price consolidation.

The best trades often occur when the Bolliger Bands have narrowed together and then begin to expand as the breakout from price consolidation occurs. These are great trades to get into. The narrower the bands, the greater potential for a stronger move on breakout. It’s like pressure has been building and finally it breaks out with a strong move.

If you combine the Bollinger Band indicator with price breakouts from support and resistance levels on a chart, you have really put the odds in your favour for a successful trade.

If you would like to increase your knowledge about how breakouts from price consolidation combined with leveraged trading instruments such as options, can be your doorway to financial independence, I thoroughly recommend Kim Reilly’s DVD Home Study course.

 

 

You Might Also Like

  • Victory Spreads Options – ‘Return on Risk’ on Steroids!Victory Spreads Options – ‘Return on Risk’ on Steroids!
  • Index Options Vs ETF OptionsIndex Options Vs ETF Options
  • Wedge Chart PatternWedge Chart Pattern
  • TradeKing ReviewTradeKing Review

Filed Under: STOCK CHART ANALYSIS

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Search for Anything Here

Main Pages

  • Home
  • Options Basics
  • Covered Calls Options
  • Advanced Strategies
  • Option Spread Trading
  • Stock Option Trading
  • Index Options
  • Stock Chart Analysis
  • Forex Options Trading
  • Options Trading Software
  • Option Trading Systems
  • Commodity Futures Options
  • Options Broker Reviews
  • Glossary of Options Trading Terms
  • Financial Disclosure

Latest Articles

  • Investing Basics – Diversify Your Portfolio to Make Money
  • Want Trading Success? Avoid These Four Trading Mistakes
  • Technical Analysis of Stock Charts
  • The Calendar Straddle Option Strategy
  • Candlestick Chart Patterns Explained
  • Bottom Fishing Stocks Using Inflated Option Prices
  • Bottom Fishing Stock Strategy – Example
  • Comparing the Bear Call Calendar Spread with the Traditional Bear Call Spread
  • Is Binary Options a Scam if you Have a System?
  • Call Calendar Spread Example
  • Options Trading Education and Training
  • The Call Calendar Spread Explained
  • The Three Legged Box Options Trade
  • Near Riskless Trading Strategies
  • Is Binary Options a Scam? Read This and Decide
  • Gold ETF Investing – 10 Facts You Should Know
  • How to Profit Like a Pro Trader
  • Earnings Report Definition
  • Jamie McIntyre and the 21st Century Academy
  • You Can! Be a Successful Options Trader


options trading pro system

Save

Home   |   Site Map   |   Privacy Policy   |   Terms of Use   |   Amazon Affiliate   
Copyright © 2002- Option Trading Fortune. ALL RIGHTS RESERVED.

Page copy protected against web site content infringement by Copyscape


DISCLAIMER: All stock options trading and technical analysis information on this website is for educational purposes only. While it is believed to be accurate, it should not be considered solely reliable for use in making actual investment decisions. This is neither a solicitation nor an offer to Buy/Sell futures or options. Futures and options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this video or on this website. Please read "Characteristics and Risks of Standardized Options" before investing in options. CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVERCOMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.