Identifying Consolidation Zones

When supply and demand are nearly equal, price moves sideways. This sideways price action is called a consolidation zone. Above is a hand drawn rectangle over a consolidation zone on ES 12-22 5min. This usually happens before price continues its trend or reverses into a new trend.

When the average range contracts over a period of time or bars, price tends to break out. Here is an example of the same chart showing multiple smaller consolidation zones spanning a minimum of 6 bars in length with a lower-than-average range.

One should be actively analyzing what price is doing while trading, and not just trade based off an indicator signal. Here’s an example of price analysis:

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