Trading High Probability Consolidations
Trading in certain types of consolidations can turn out to be highly profitable as you can get huge rewards here as compared to traditional trading markets, and that too while keeping risks minimal. Even when you are trading binary options, you can trade with consolidations to get good trading opportunities. However, some additional analysis of historical charts would be required for you to decide on the appropriate expiry time for different high probability consolidations.
Here’s a guide that can help you understand how you can trade in high probability consolidations.
What Are High Probability Consolidations
Before starting with the actual trading, you first need to understand what high probability consolidations are. In actual, this can be a subjective matter to determine what high probability really is In addition, spotting these consolidations is going to take some practice on your part.
A consolidation can basically be defined as a pause in a trend. It is better to buy during that consolidation time because of the assumption that the trend will complete the consolidation pattern. However, the assumption may not always be true, so it can take some time and practice for you to understand which consolidation is worth trading.
The price usually drifts after a nice trend, either against the trend or sideways, which is why it is not called a channel but rather a directional movement. The price does not show any aggressive movement at this time, but only wiggles back and forth within a relatively small area. Whenever this happens, this indicates a great setup for making a trade at that time. The consolidation, however, should not be too big, or else it would indicate a top or bottom downtrend pattern
The Classic Consolidations Trading Approach
If you intend to follow the classic approach to consolidations trading, you should typically wait for a breakout. However, if you have enough practice to spot high probability consolidations, you should trade slightly near the low or high of the consolidation. This will minimize your risk in case you stand to lose while giving you a chance to make high profits when the trade turns in your favor.
The best way to master your approach and build your ability to spot high probability consolidations successfully is to always use demo accounts. You can keep working with these demo accounts until you learn to make profitable trades after which you can move to the actual trading markets.