Therefore we know that consolidations are essential to the overall trend or reversal.
When a stock is moving up which is called Trending, we know that the buyers are willing to pay increased prices expecting to sell at a profit. But as we know the buyers can't just keep on paying higher, as such the capacity of paying higher by them tend to reduce, at that point the sellers will have to come down in price to sell. Just because the sellers are coming down to sell doesn't mean that the stock is now going to reverse and complete the up trend it is presently enjoying. In an uptrend the message that's given by the buyers is that they are not willing to just pay up, instead they are now wanting to absorb the selling at a range. This range is the consolidation phase of an up trend.
As an example let's take the present trend of Tokyo Cement Plc, in the chart given below:
On the 31st of May 2016, TKYO.N.0000 opened at 38.80 and closed at 39.80. There onwards it went upto 44.50, and moved sideways between 44.50 and 39.50. Thereafter it continued it's ascent gradually to hit a high of 58.50 on the 26th of August 2016. The Trend paused there and is moving sideways between 58.50 and 55.50. Based on the present trend I believe that it will break above 58.50 and continue it's trending phase. If we see it closing above 57.40, then there is a very good chance of it breaking above the 58.50 high as well.
The Good side of a consolidation is that in the side way movement the buyers are prepared to absorb the selling until such time the selling drys down. At which point the trend will resume.
But the Bad side of it is that it is very difficult to trade in the side way movement unless you are confident and experienced. Which can only be improved with patient and intelligent trial and errors. In order to master it you need to understand the support and resistant areas and closely follow the oscillator indicators such as RSI and Stochastics.
Present behaviour of several stocks suggest that they have the potential of continuing their uptrend, and they are given below:
AEL - will consolidate between 26.50 and 25.50.
GRAN - will consolidate between 95 and 91.
CFT - will consolidate between 6.60 and 6.40.
BLUE - will consolidate between 2.20 and 1.90
PCHH - will consolidate between 1.50 and 2.00
COMB - will consolidate between 130 and 140
JKH - will consolidate between 145 and 150.
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