What is a consolidation breakout?

A consolidation breakout is when the price of a share finally breaks out from a period of sideways or horizontal trading. A breakout can occur after a long consolidation phase, during which time the stock has been coiling up like a spring, ready to make a move. There are two types of breakouts: bullish and bearish.

How do you know if a stock has a consolidation breakout?

The first step to identifying a consolidation breakout is to establish that the stock has been trading in a narrow range.

How do I scan for a consolidation breakout?

To scan for a consolidation breakout, you need to include all four types of clauses in your scan: uptrend, consolidation, breakout and volume confirmation. In our previous examples, we were scanning for consolidation that was still going on at the time of the scan, so our uptrend and consolidation clauses were looking at today's values.

Why is a consolidation pattern broken?

A consolidation pattern could be broken for several reasons, such as the release of materially important news or the triggering of a succession of limit orders. The lower and upper bounds of an asset's price create the support and resistance levels within a consolidation pattern.