By Bennett McDowell

Money in trading is made from catching a significant trend. Money lost in trading occurs by missing or being on the wrong side of trends. So the real question is “How do we protect and preserve our trading capital as we position ourselves to catch the next profitable trend?
Significant trends are known to emerge from market consolidations and it is during these consolidations that traders experience “whip-sawing” leading to psychological trauma that can cause havoc with a trader’s life, which can cause the trader to miss the trend altogether!
It is said that markets trend approximately 35% of the time, meaning that 65% of the time they are trend-less. Consolidations are known to occur before many significant market trends and to be a profitable trader you must learn how to exploit these trends while not losing your money when the market is trend-less.

Non-Trending Markets Are Lethal To Trend Traders!
Trend traders need to develop skills to:
1) Identify Non-Trending Markets Quickly To Avoid Trading Losses So They Preserve Their Capital
2) Have Skills To Identify and Take Advantage Of Non-Trending Markets:
a) Identify and Bracket the consolidation with support and resistance lines forming a clear visual channel and wait for the market to break-out of this channel before trend trading again
b) Use options or scalp the consolidation for profits while you wait for the next trend to emerge
c) Move to another market or time frame to trade and come back once a trend emerges from the consolidation


Consolidations: A Textbook Definition
Let’s define a market consolidation. A dictionary definition of a market is “the world of commercial activity where goods and services are bought and sold; without competition there would be no market”. A dictionary definition of a consolidation is “something that has consolidated into a compact mass; combining into a solid mass; an occurrence that results in things being united”. Reading these two text book definitions leads one to believe that a market consolidation is one where the competition between buyers and sellers unite to form a compact mass. A trader’s definition of a market consolidation is one where prices have remained range bound within a narrow price channel.
Is market consolidation an area where little or no new information has come into the market to cause a greater disagreement of value or perceived value which would move prices? And do trends occur because the value or perceived value is changing so much that the price must change to represent the new value? Answering yes to these questions leads to the conclusion that market consolidations are areas where no new value perceptions are being generated. Thus, prices remain “tight” or range bound. Consolidations are also known “Bracketed”, “Channeling”, or “Range-Bound” markets.