Join Dstockmarket's Community - Daily Market Analysis, Individual Stock Analysis.
The bullish consolidation at support is a powerful continuation pattern with an added safety feature below. There is support that helps to give an added confidence to the trader.
When you combine this two technical concepts, they pack a powerful punch and help traders to spot a winning chart.
Just as the names implies, they are two things that need to be present in order to be considered a valid pattern.
If you are not familiar with the concept of support and resistance, I recommend that you go to Chapter 3 of my Stock Market Course and read the articles on the concept of support and resistance. Otherwise you might be lost in this article.
The diagram above shows what a bullish consolidation at support chart pattern looks like. This pattern happens quite often in indices and stocks and therefore you should definitely learn about this pattern. When you have mastered this pattern, you will be able to find lots of very reliable trading signals.
First of all, the stock will have a major support or minor support.
The support is an area that helps to keep the stock from dropping. The stock will consolidate or trade sideways at the support area for sometime. When a stock trades sideways, it means that the stock is resting before going higher.
The consolidation may take a few days or a few weeks. Eventually the consolidation will breakout (move higher) or breakdown (move lower). Since there is support below, the odds of the stock going up is higher.
One of the beautiful uses of chart patterns is to use them to find bullish periods in the indexes. If you learn as many bullish continuation patterns or bullish reversal patterns as possible, it will give you an advantage. The knowledge will help you to spot the times when there will be big moves in the indexes.
As 75% of stocks follow the direction of the major indices, a bullish or bearish move in the indexes will have a big impact on individual stocks. When indexes break out and go up 3%, individual stocks can go up as much as 10%-20%. Therefore, learning to spot a daily consolidation at support breakout in the main indices will give you a big advantage in knowing when stocks are likely to move up a lot.
One of the main indexes in the US stock market is the S&P 500. Traders will sometimes use the ETF for the S&P 500 to do analysis. The ETF is called SPY which stands for Standard & Poor's Depositary Receipts.
The chart above is the daily chart of SPY.
Notice how SPY consolidated at support and then broke out higher. The support area was a previous high that was overcome. Once the old highs were overcome, it now becomes a new support. As the SPY traded sideways at the support area, it met the rising 20 MA and then broke out higher giving the markets a nice run up.
Now that you have seen a live example of this chart pattern, let me just point out to you again the benefit that this chart pattern gives the trader. This chart pattern gives traders 2 benefits:
Because the stock appears at support, you can have more confidence that the support area will help to keep your stock up. Stocks do not simply fall below support. It takes a bit of time and energy for a stock to fall below a support. Secondly, a consolidation gives a stock a period of rest. It refreshes the stock to enable it to breakout higher and provide continuation of the upwards move.
Let us now take a look at more examples of the bullish consolidation at support breakout chart pattern. The more examples I show you, the better you will be able to spot this pattern in other stocks. There are slight variations in each stock but the trained eye will be able to spot them.
The chart above is the chart of ACN. Notice how the stock formed a high in June 2017 and then it corrected. Then the stock rose and overcome the old highs and consolidated. The old highs once overcome became the new support. ACN consolidated at support and then broke higher.
DHI had two consolidations. The first once was a very long consolidation that lasted about 2 months. Then the stock broke above the consolidation which now acted as a new support. The whole area of the first consolidation is a support area. The stock then traded sideways for awhile and then breakout higher.
Amazon is also a stock that produced a nice bullish consolidation at support pattern. The stock had a correction from late October to December and then it slowly climbed up. It then broke above the old highs which now becomes a new support. Amazon then traded sideways for awhile and then broke out higher.
This chart pattern does not only appear in US stocks. In fact, you can find this chart pattern appearing again and again in many different stocks around the world. Once you learn this chart pattern, you will be able to utilize it to find trading candidates in other stock exchanges.
Below is a stock from Malaysia called Mega First Corporation. I happen to come across it when a friend asked me to analyze this stock.
If you look at it closely, you will be able to see that it almost made the same pattern as Amazon. Both of them consolidated at a former high that acted as support. Mega First consolidated at support and then broke out higher giving Malaysian traders a nice bull run up in this stock.
By now, you might have notice that all the examples that I have shown you are above their rising 20 MA and rising 50 MA. When a stock is trading above its rising 20 MA and 50 MA, it is a picture of strength. This is a picture of an uptrend. When a stock is in an uptrend, it is likely to continue to run higher.
Take a look at Agilent Technologies above. Notice how the stock stayed above the rising 20 MA and 50 MA when it formed the chart pattern? The stock consolidated at support and then broke higher.
You have now learned a very powerful pattern which is very reliable. Learn the pattern well and learn to spot it in other stocks as well. Once you have mastered this pattern, it will give you a very reliable trading setup which you can use for trading stocks all over the world.
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
Jan 18, 21 10:34 AM
New chart lesson for the 3rd week of January 2021. Hope you can benefit from this.
Jan 04, 21 11:30 AM
In this week's chart lessons, we will have a look at bitcoin and other charts.
Dec 29, 20 07:47 AM
We should continue to be bullish on the S&P 500 as a weekly bottoming tail forms in this uptrend.
Dec 22, 20 09:27 AM
The SPX is still in a nice bullish uptrend, with it staying above the rising 20 MA and 50 MA.
Dec 15, 20 09:53 AM
December 14 2020 will go down in history as one of those moments where 2 sets of electors emerge for swing states in the US Presidential Election.