The Bullish Consolidation At 50 MA is a chart pattern that usually occurs in slow trending up stocks that are climbing up steadily. They follow the trend and therefore can be said to be a trend following chart pattern. This pattern is quite rare as not many stocks will consolidate sideways in a tight range to meet its 50 MA. Usually stocks will correct to the 50 MA and then bounce up. Therefore, a stock that consolidates slowly to meet the rising 50 MA shows an unusual strength but the gains in this stock will be slower. Its good for those who like stability and slow gainers rather than other volatile chart patterns.
To qualify as a bullish consolidation at the 50 MA, a stock needs to display these signs:
The chart above shows AMZN and what a bullish consolidation at 50 MA looks like. Study the chart carefully and you will notice that AMZN fits all the criteria of this chart pattern.
Some traders will trade this pattern by buying the breakout above the chart pattern and put a tight stop below the low of the box. This chart pattern is very clear, very easy to spot and it often gives the trader a very good risk reward trade.
The chart of Cognizant Technologies shows a bullish consolidation at 50 MA chart pattern that occurred from February 2017 to May 2017. During this period, the stock traded in a nice tight price range. The fact that this stock did not fall but traded sideways showed strength in this stock. The stock was merely taking a rest before climbing higher.
One of the characteristics of stock forming this chart pattern is the slow steady climb upwards after the stock breaks out from the box. CTSH climbed up slowly but surely. Do not underestimate a slow climber. Sometimes a steady winner is the one that helps to grow your account.
Compared to many other chart patterns, this bullish chart pattern is often ignored by traders or the public. The reason is because the public and traders like action. They are attracted to something that moves fast and moves big. For example, the public will be enchanted with a stock that moves up 8% in a day. They will also be very excited with a stock that goes up 25% in a week. When all eyes are focused on fast moving stocks, not many people pay attention to stocks that are making the bullish consolidation at 50 MA chart pattern.
But for those of us who know this pattern, we patiently wait for the pattern to complete and put an alarm above the box of the pattern. We can enter the stock as it breaks out. Even after it breaks out, not many people notice the stock. That is because the slow steady climb will not be making headline news. It is only after a few months when the stock has moved up 20% that the public begins to think highly of the stock. By then, those of us who know this pattern has already been holding the stock for a long time.
We will be selling it to others. If the stock continues to climb higher, we gain even more.
Look at how ANSS experienced a step by step climb up. Not a very exciting ride but it is a steady gainer. The stock was around 95$ in February. But by June, it has already gone up to $120. Stocks that go up step by step offer more peace and stability for holders of the stock. Not to mention the heart attacks that will happen to investors who have their money invested in volatile stocks that go up and down like a roller coaster. Traders who trade and investors who invest in stocks making the bullish consolidation at 50 MA will sleep better at night.
I'm sure you have heard me mention the saying "The trend is your friend" many many times. You would have read about it many many times as well. The bullish consolidation at 50 MA allows the trader to utilize a chart pattern that actually follows the trend.
One of the things that separate a good stock from a bad stock is the fact that it is trading above the rising 50 MA. We carefully select stocks that are consolidating and is above the rising 50 MA. When it breaks out higher, we are trading with the trend rather than against the trend. This in turn increases the odds of success for us.
In the chart above, notice how AVY followed the trend higher? A step by step climb higher that follows the trend is a good way to trade or invest in a stock.
You might want to check out this article, 7 Reasons Why Trend Trading Beats All Other Trading Strategies.
If you have studied a little about support and resistance, you will realize that a consolidation is actually a very strong support area. It can be considered a major support area because of the massive amount of price action that happened there.
In the chart of AEP above, we can see that there are actually 2 bullish consolidation at 50 MA plays in the stock. One was in February and the other was in late May. The first chart pattern in February was a success but the second one looks like a failed chart pattern. When the double top happened, the stock dropped to around $68.
Let's take a look at what happened when we fast forward the stock chart.
The correction in AEP was just a small bump in the road. The tight consolidation acted as a strong support area which enabled the stock to find support and bounced higher. Although it is not easy to sit through a correction, the support area gave traders confidence to hold on to the stock. Some traders might even consider adding some position when the stock dropped to the support area.
One thing I have noticed in chart patterns is that if the chart pattern works in American markets, it will work in any market in the world. That's because stocks are traded by human beings and the emotions of greed and fear never change in any country in the world.
Below is the chart of Hai O, a stock from Malaysia.
The stock consolidated nicely and met its rising 50 MA. It then gap up on unusual volume, giving the trader a nice swing trade up. The stock later corrected to the consolidation area which acted as price support. Hai O then reversed higher and continued to make an all time high.
No chart pattern is fool proof all the time. But to be able to recognize this chart pattern as it develops will give traders and investors confidence to initiate a new position or to hold on to an existing one. The Bullish Consolidation At 50 MA is quite rare but when you see it happening in a stock, it usually produces a slow and steady winner.
Charts with the Freestockcharts.com label are courtesy of Freestockcharts.com
Charts with the investing.com logo are courtesy of Investing.com powered by Trading View
May 06, 19 06:04 AM
Technical analysis of the US stock market with coverage of futures.
May 06, 19 05:46 AM
Step by step technical analysis of the KLCI Malaysian stock market.
Apr 22, 19 06:55 AM
A technical analysis of the US stock market. I go through the major indices of the US market and see where it is likely to go.
Apr 22, 19 06:47 AM
Technical analysis of the Hang Seng. Learn how the Hong Kong stock market is doing and where it is likely to go.
Apr 22, 19 06:36 AM
Technical outlook for Malaysia's biggest market cap stock.