Forum Archive Index - November 2002

[Phaedrus <Phaedrus@techemail.com>]

 This chart shows a classical example of a trading range doing what they 
usually do - acting as a consolidation zone after an existing trend, which is 
then resolved in the direction of the trend that preceded it. Trading ranges 
are sometimes referred to as "Rectangles" or "Consolidation areas".

 Trading ranges can be treated in many different ways. Long-term holders would 
do nothing, and continue to hold, as the long-term trend is still up.
 Medium-term trend traders would have sold on the trendline break, and bought 
back in when prices broke above the upper trading level.
 Short-term traders would attempt to buy the lows and sell the highs that 
constitute the trading range.
 Whatever the approach, it is prudent to sell on any break below the lower 
trading level. Trading ranges that break below their support level often become 
reversal patterns.
 Exactly the same thing can happen in downtrends - the trading range is a 
consolidation zone, usually leading to a resumption of the downtrend.

               Phaedrus.

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