THE HAnDbook oF TECHnICAl AnAlysIs
Completion of a Consolidation phase
When attempting to identify points between phases, the issue of subjectivity arises
yet again, as it does fairly frequently in technical analysis. The question a trader
or analyst would always ask is “At which point does the consolidation actually
end?” There is no absolute consensus or measure to determine the exact point in
time or price at which a consolidation ends. It really depends on the approach and
objectives of the trader or analyst.
For example, some market practitioners look for a 3 percent to 5 percent
rise above the highest peak from a consolidation range as evidence of comple-
tion, whereas others look for the minimum measuring objective (i.e., expected
minimum price target) to be met before completion is confirmed, which is usu-
ally a price excursion equal to the range or height of the consolidation. But more
popularly, most traders and analysts look for a clear and simple technical break-
out from a consolidation range as potential evidence that the consolidation has
completed. Even so, the price at which the breakout itself occurs depends largely
on the type and degree of price filtering employed. See Figure 4.4.
Logically, once a consolidation is complete, it also implies that a trend may
already be in effect.
4.2 Chart Pattern Interpretation of Market Phase
Market phase can also be potentially identified by the type of chart patterns that
manifest themselves at each stage of the three phases. Basically, most chart pat-
terns belong to one of two groups, that is, reversal or continuation. Both the
accumulation and distribution phases tend to be populated by reversal patterns.
Interestingly, the majority of reversal and continuation chart patterns are usually
also regarded as consolidation patterns, with the exception of V tops and V
figure 4.4 Most Popular Technical Levels Signaling the Completion of a Consolidation.
