One of Nik Halik’s favourite strategies is waiting for breakouts from price consolidation. The term “consolidation” refers to a sideways movement of stock price for at least 5 days.
Price consolidation often occurs around support and resistance points and once breached, can form one of the most validating indicators that you should enter a trade. But price consolidation can also occur anywhere on a chart. The general rule is, that the longer the period of consolidation, the stronger the move once there is a breakout.
The hardest thing I have found, about waiting for signals out of price consolidation, is having the patience to wait for it. When a stock price touches a trendline, your immediate urge is to buy call or put options (depending on whether it’s support or resistance we’re talking about). But I have been burned a number of times in the past, as I have watched the price go sideways for a few days and then continue onwards. The option price decayed while the price consolidated and then fell even more once the breakout in the wrong direction occurred.
I have learned my lesson.
I can’t over emphasise how valuable this simple observation is. Nik Halik’s DVD Home Study course contains a section on a great little indicator called “Bollinger Bands”. These are like a support and resistance line that wraps around the price movements on a stock chart. Bollinger Bands also measure price volatility over a given timeframe and provide excellent validation for price consolidation.
The best trades often occur when the Bolliger Bands have narrowed together and then begin to expand as the breakout from price consolidation occurs. These are great trades to get into. The narrower the bands, the greater potential for a stronger move on breakout. It’s like pressure has been building and finally it breaks out with a strong move.
If you combine the Bollinger Band indicator with price breakouts from support and resistance levels on a chart, you have really put the odds in your favour for a successful trade.
If you would like to increase your knowledge of how price consolidation and option or CFD trading, can be your doorway to financial independence, I thoroughly recommend Nik Halik’s Home Study DVD Course.
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