Definition – What does Consolidation mean?
Consolidation refers to a period during which a currency pair’s price action fluctuates in a certain range without establishing a trend either up or down. Consolidation is believed to be the either the result of exhaustion on the part of market participants or broad market uncertainty. Consolidation is inevitably followed by a breakout in one direction or the other.
ForexTerms explains Consolidation
Consolidation is often seen as an opportunity to set up a position to profit from the likely direction of the breakout. The longer the period of consolidation, the stronger the expected breakout is believed to be. The average length of consolidation is related to a forex trader’s time frame. Longer term traders see more consolidation because their overall support and resistance levels are wider, meaning days, weeks and months can pass before a significant breakout occurs. Consolidation often appears on charts as a rectangles, triangles or wedges when trendlines are plotted.