Moving from Downtrend to Consolidation

The first of these five formation types is seen when a primary directional trend (bullish or bearish) ends with a move to consolidation. This occurs with a number of specific signals and involves two important points of recognition: understanding that the current primary trend is ending and then spotting a likely evolution into a period of consolidation.

This evolution occurs often and is a rational pattern. Once a price evolves to the point that it exhausts a current trend, a period of uncertainty is likely to follow. Or, in the alternative, the end of a long-term trend can also lead to a period of agreement, and not uncertainty. When buyers and sellers agree that a newly established range is reasonable ...

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