Consolidation Patterns
The market value of a stock is a determined by pure supply and demand
battles between Bulls and Bears.
This supply and demand is constantly changing on a minute by minute basis.
There are probably hundreds of both rational and some irrational factors
that play into a stock movement.
I believe that stocks move in trends that can last for a long time. During
these major trends, minor counter trends do develop and the trader tries to
take advantage of movement both to the up and down on stocks.
It is also very common to see stocks trade in a range until supply or
demand factors resolve themselves.
It is moves from these consolidation areas that present some of the best
trading opportunities.
These consolidation patterns can take the shape of rectangles, symmetrical
triangles, ascending triangles, descending triangles, flags, double tops or
bottoms and even triple tops and bottoms, head and should formations and
rounding tops or bottoms.
It sometimes amazes me how the stock market follows the same crowd behavior
and keeps repeating these patterns over and over again. The basic nature of
the markets fear and greed exhibits itself everyday.
Let's examine one of these formations.
Let's look at a rectangle formation in Intel Corp. (NASDAQ: INTC)
On October 13, 1999, INTC had a gap drop on unfavorable earnings reports.
Will the street forgive INTC for not being more up front?
A breakout above yesterday's 74 would be a positive breakout.
A drop in the next day or two below 71 would point to lower prices in work.
The way to play this congestion is to be ready with two orders.
Place a Buy Stop order at 74 �.
Place a Sell Stop order at 70 �.
Let the market tell you which direction this congestion will resolve itself.
I would place my stop at 2 points from entry from my long or short.
