Being able to identify consolidation will be beneficial for two reasons:
Often times, after a consolidation period there will be a large move once volatility dies down and the range tightens. If we can identify when consolidation is occurring we can prepare for a big move. I'm thinking that once consolidation is identified, we can take in more data to determine whether or not the next big move will be bearish or bullish.
If we can identify the bottom and top of the range, ideally we can buy near the bottom of the structure and sell near the top. This is easier said than done, but once the range is identified, we can take in more data that would help determine whether or not the bottom of the range will continue to be support. This extra data could be looking at volume, past price action, etc.
In this specific picture it distinguishes between a bullish and bearish pennant. More times than not (I think), a move after a consolidation period is a continuation of the move before the consolidation period. So if there was an impulse upside move into consolidation, there is good reason to believe that the next move will be an upside impulse move. Unfortunately this is not always the case, and false breakouts do happen fairly often. With this in mind, I want to first get good at identifying consolidation and estimating when it will break out, and not worry about the direction yet.
Finally, consolidation doesn't always "pinch" together like it does in the previous examples. Sometimes the price will just bounce between the top and bottom of the structure and break out without reaching a "tip". With this, it's harder to determine when the breakout will be, but this is good for buying the dips and swinging to the top of the structure.
Being able to identify consolidation will be beneficial for two reasons:
Often times, after a consolidation period there will be a large move once volatility dies down and the range tightens. If we can identify when consolidation is occurring we can prepare for a big move. I'm thinking that once consolidation is identified, we can take in more data to determine whether or not the next big move will be bearish or bullish.
If we can identify the bottom and top of the range, ideally we can buy near the bottom of the structure and sell near the top. This is easier said than done, but once the range is identified, we can take in more data that would help determine whether or not the bottom of the range will continue to be support. This extra data could be looking at volume, past price action, etc.
In this specific picture it distinguishes between a bullish and bearish pennant. More times than not (I think), a move after a consolidation period is a continuation of the move before the consolidation period. So if there was an impulse upside move into consolidation, there is good reason to believe that the next move will be an upside impulse move. Unfortunately this is not always the case, and false breakouts do happen fairly often. With this in mind, I want to first get good at identifying consolidation and estimating when it will break out, and not worry about the direction yet.
Finally, consolidation doesn't always "pinch" together like it does in the previous examples. Sometimes the price will just bounce between the top and bottom of the structure and break out without reaching a "tip". With this, it's harder to determine when the breakout will be, but this is good for buying the dips and swinging to the top of the structure.