Why Do Markete Need Consolidation?

Do markets rest? When the markets consolidate

, accumulate or go sideways, it is like markets taking a rest and sleeping. There are two main reasons why the market starts to consolidate, accumulate, bracket or go sideways.The first main reason for the market to consolidate, accumulate or go sideways is when the world is waiting for a fundamental announcement and trades stop trading in anticipation of a major market move or breakout after the announcement. When the traders stop trading, the market starts to consolidate in a tight range or what you call a small trading range. These smaller trading ranges maybe between 20 to 60 pips! They can be seen on smaller timeframes such as the 30 minutes or 60 minutes charts.The second main reason why a market may want to consolidate could be due to a country trying to intervene in the currency market and wanting its currency to trade within a tight range for economic reasons. Imports exports can be an important factor for a country's economy. Sometimes countries want to spur imports or exports, for this reason that country may decide to intervene in the foreign exchange market.For example, Japan is a major exporting country in the world. Its economy is export based. Japan may want its currency Yen (JPY) to stabilize between 110 and 115 yen to the US Dollar (USD). This is a 500 pips range. Japanese Central Bank (JCB) may feel that by intervening in the currency market, it can boost its exports making them more competitive.Now, when this happens, the currency market usually goes into an extended period of consolidation or sideways movement that might extend to weeks or even months. This is the time when you can find large trading ranges in the market something like 150 to 500 pips. These large trading ranges can extend for weeks or even months. You can observe these large trading ranges on eigth hour or daily chart.Now most of the time, the market is going up or down or sideways between two horizontal levels. Markets get locked in such consolidation movement for 60-70% of the time. As a trader, you should learn how to trade ranges. Learning how to trade these consolidation movements can be financially rewarding. There are three trading strategies that you can use to trade consolidation, accumulation, bracketing or sideways movement in the currency market. Knowing this can help you a lot in your daily trading!


Why Do Markete Need Consolidation?

By: Paul Easton

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