Trading Consolidation Setups

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Video Transcription:

Hello traders, welcome to the News Trading Course on the second module Technical Approach, How to Trade. In this lesson, we are going to look for the second setup or we are going to learn the second setup, which is called Consolidations. Now, you need to understand something, the first and second setups you’re going to be looking for them, once the move has begun. This means that you’re going to wait for the news to be released then you’re going to wait for the first move. And if you have a correction or a corrective move you are going to trade the corrective move. But sometimes you are not going to have a corrective move because the move is too strong, and when you don’t have a corrective move you’re going to look for these consolidation periods before trading.

Trading Consolidations

Okay now, let’s go to a chart. Well we’re going to go to the Forex factory economic calendar to look for a news release and then we’re going to go to the charts. Okay so here is the Foex factory economic calendar and we are going to focus on the core retail sales month over month, and the retails sales month over month that were published on May 13th, at 3:30 p.m. And as you can see both numbers were negative, so we are looking at a bearish pressure on the U.S. Dollar, which means that we are going to look to buy the Euro U.S. Dollar.

Okay so here’s the Euro U.S. Dollar and the GBP USD. This is the 50 minute chart so we are going to locate May 13th, at 3:30 p.m. I think it’s this very big move to the upside which is about 87 pips, which I think it’s normal for this kind of news and or the GBP USD we are going to do the same on May 13th, at 3.30 p.m. we said. Right? May 13th, 3.30 p.m., we have the spike to the up side. Okay remember that we have a bearish move on the U.S. Dollar which means that we are going to have bullish moves on the Euro USD and on the GBP USD.

Trading consolidation periods

Now, I think we’re going to focus on the Euro U.S. dollar because just by looking at past price action we have better levels on the Euro U.S. dollar than we have on the GBP USD. Which means that what we are looking for is not to have a lot of resistance zones above the price explosions. Well of course you don’t know where the price is going to explode to, but right here you can see that on the Euro U.S dollar, we don’t have too much areas of resistance to the upside. So there’s more room for price to move in our favor than it is on the GBP USD. You can see that the GBP USD was trading right here at this lows before the news and we have this area of resistance, we have this area of resistance, we have a gap right here. So there’s a lot of areas that the price has to break through to make new highs. And this makes for a very choppy price action. So we are going to focus on the Euro U.S. Dollar.

Okay so this is the 50 minute chart. Let’s go to the hourly chart and look for some levels. So we have, for the first level right here, if you agree with me, let me just use another color on my horizontal line. Let’s use a green… no let’s use an orange color. So we have this level right here on the hourly, and ultimately we have the this level right here. So these are the two levels we are going to be looking for or looking at once we trade this news. We are going to go to May 13th, at 3:30 p.m. and we are going to go to the one minute chart. Now let me just scroll back to where price action was trading at before the release of the news, and we’re going to start to wait for these consolidation periods.

Now this is what you’re going to be looking for. We have the newest release and we have the explosion to the upside as expected because we have bad news for the American economy so we have a bearish pressure on the U.S dollar, so we are going to look to buy the Euro U.S. dollar. Now you can see we have a massive explosion to the up side and we don’t have a corrective move to the downside. This means that we’re going to look for consolidation period. And a consolidation period looks like this. I’m going to use a rectangle to show you how to trade these consolidation periods.

First of all, you need to look for the highs of the consolidation period which are these spikes to the upside. Now this means – and as you can see right here, this consolidation period – well starts to trade… or price starts to trade inside this consolidation period right at the first target, that we put it out on the hourly. This means that traders that traded the explosive move to the upside were taking profits right here. And that means that they made a 39 pip profit on this trade. And the other thing you need to look for is a low on the move. And the low on the move is this spike low.

Setups for News Trading Consolidation

We have a consolidation period of about 40 pips. What we are going to do is we are going to place a… once price moves to these lows, we are going to place a pending buy order or a buy stop right here, above the consolidation period. It can be a pip or two… well a pip above the consolidation period is fine and we are going to put our stops below the consolidation period. And this gives us a 60 pip stop loss. And we are going to aim at the next area of resistance, and as you can see price after the consolidation period, we get filled on our buy stop, now we are trading actively. And remember that we are targeting this area right here, which is the second target that we looked at on the hourly. And because we want to get filled we are going to put our target a few pips below. Always put it a few pips below. Five, six pips below it’s fine.

And as you can see after the consolidation period we trade up, not in such an explosive way but still we are riding the volume that entered the market because of the news on the second wave up, and we hit our target for a nice 40 pip win, which means that we made an almost three to one risk to reward ratio trade. And this is a textbook consolidation period trade.

This is these is the two setups that you are going to be looking for after the explosive move. If you don’t get a corrective move to the downside, which because in this case we are looking for a move to the upside, if you don’t get a move to the downside to be able to buy low, you are going to wait for the consolidation period. And if the consolidation period doesn’t happen, well you’re not going to be trading the news because no position is always a pos…

Adam

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