Areas of consolidation have so much information to provide. Not many people understand how to use them. When people see areas of consolidation, many people make comments like “the market is trying to make up its mind”. Speculative analysis. It isn’t even technical. What do most people do with such speculative analysis, they generally say they are SOH. Sit on hands. No real clue what to do. They think it is chop and have no idea how to play these sideways movements. Another thing that people do when they get into areas of consolidation is go long at peaks, and short at bottoms or valleys.
Technically, areas of consolidation are spots where momentum builds up. The more noticeable areas of consolidation people should note are peaks and valleys. Peaks and valley have 2 very distinct properties that you can immediately discern.
1. Support – is the level below the price action. When lost becomes resistance. Lost meaning price action goes below this level.
2. Resistance – is the level above the price action. When regained, as in price action moves above it, the level will become support. Aside: you wont believe how many people still mix this basic fact up.
Top Range
Bottom Range
When you determine these 2 parts of these peaks and valleys, what you have is a range. And within these ranges will often see a doji contained within. Where the doji open/close will also determine your mid range. The top, middle and bottom of the range are significant levels. If there isn’t a doji present, the next thing to do is utilize the opens and closes of the candles. You should see a price that is consistently being used as an open or close. A note about doji priority. People have these generalizations they like to make. One such generalization they make is “it works till it fails” pertaining to technicals. The failure is that they don’t recognize their own lack of understanding. Not so much that the techs failed. You get remarks like. “I don’t trust a doji unless supported by volume.” or one more less absurd is “sometime doji’s fail“. The less absurd is easier to answer than that completely brainless comment about doji’s being supported by volume. The doji may look like it failed but it is a matter of understanding the level precedence.
If you suspect a level with a doji to be a strong support or resistance, look for that level at a higher time frame.
People often limit their view. The question is always…why? The real problem is that people really don’t understand what it means to “PLAN” their trades. And with their limited view, they often form an irreversible bias. This bias then solidifies their generalization that “it works till it fails”. How do you trade with that kind of “confidence?” in what you read. I kind of picture a person walking, completely focused on his feet but not the road ahead. Then he declares after each step, it works till it fails. And ahead of him, just a couple steps away is a cliff.
That is how most people trade. Most of their trading considerations happen at the spur of the moment, never understanding that what happens is a result of progression. The higher time frame will always have precedence over a lower time frame. If a level is respected in a higher time frame it will always be respected in the lower time frame. The doji that aligns with such higher time frame level is the doji of precedence. This will be the way you will prioritize levels that seem to have a clusters of doji within 2-3 ticks from each other.
Channel Range
There is another area that you can gain insight into support and resistance. Many people consider these consolidation areas as rectangles or channels. The channels I am talking about are the horizontal channels. These are also important and telling areas of consolidation and provide the same information as peaks and valleys. And are used in the same way.
This demonstrates what true support and resistance really work. If it was significant before, it will be significant again. And you can gain a lot of information from areas of consolidation. No I do not draw these lines all over my charts. I look for them as the price action brings these levels into play. I also try to understand how these levels have been played within the context of progression. Meaning, has it been tested once before in the accumulation/distribution progression. If it has, then more than likely, price action will go through that level on the second attempt.
Now if you are intelligent, you will figure out a way to utilize this bit of information.
Additional Charts
I enjoyed the calls from the room about 36, and one guy said POMO had $6.5-8 billon for today. He was long when it dropped.
How did momentum support this action?
What is the longer term view of this action?
Weekly view shows how it works with levels. Any different from any other time frame?
4hr shows how the intraday legs are being targeted.
And the 2hr momo that helped the bullish progression.