Trading consolidation patterns prior to a news event, such as Euro CPI , does not have to be a difficult proposition. The first key is to trading this chart is to identify the area of consolidation on our chart by finding support and resistance.
Currently price has found overhead resistance at the conclusion of a standing pip uptrend. Moving down the chart, we can see a line of resistance formed by connecting the September 5 th , 12th, and 13 th highs. An ascending support line can also be drawn by linking the wicks from our September 7 th and September 12 th lows.
Once we have found these two charting lines, we can extrapolate them to form a triangle pattern and identify entries using OCO orders. Once a consolidating pattern such as a triangle is found, our trading decisions become much easier.
We can either wait for price to breakout of its existing holding pattern, or trade between support and resistance. With news events potentially creating market volatility, a breakout strategy may be the preferred plan of action for traders. Breakouts entries should plan to prepare for the collapse of one of our support or resistance lines previously drawn on the graph.
Setting entry orders can be an advantage to a trader during a news event. If you are unsure where the market is going to break, both buy and sell orders can be placed through an OCO entry. OCO one Cancels the Other will enter into the market with a long position on the break of resistance of a short position with a break of support. Stop orders can be placed in between the OCO entries prepared to limit losses on the return of prices back inside of previous support and resistance levels.
As mentioned, entries may be placed outside of current highs and lows. Stops should be placed in the center of our consolidation pattern near 1. Limits should look for pricing targets of over pips or more to create a clear 1: Alternative scenarios include price continuing to trade inside of the triangle prior to a breakout.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Click here to dismiss. Created by Walker England Once a consolidating pattern such as a triangle is found, our trading decisions become much easier.
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