Price Action: Trend Continuation and Reversal (Part 2)

A trading range pattern, when viewed on a higher time frame, must contain two opposing thrusts — first a bullish mania pushing up, then a bearish violent sell-off — ultimately forming a bull-bear tug-of-war consolidation zone.

A trading range is formed by opposing climaxes — a rapid spike up followed by a rapid spike down. It only takes two simple up-and-down thrusts.

Understanding that every pattern signals the next opportunity is like lighting a lamp. This requires you to simultaneously assess the continuity of the move.

Because if the thrust is violent and price is changing rapidly, you must follow immediately. This creates trading urgency, so traders will choose to enter at market price for immediate execution.

But if momentum is weaker and thrusts are slower, pullbacks will be deeper, and you are in a typical range-bound market. In this case, various refined entry techniques become particularly important and have an advantage over simple market-price entries.

Assessing the pullback depth ratio increases the probability of a trading range forming. Within a trading range, the range itself creates resistance to breakouts.

There are three possible evolutions of a trading range:
The price range can remain within a rectangular boundary;
Price may gradually converge, forming a triangle consolidation pattern;
Or it may expand the range of fluctuation, evolving into an expanding triangle pattern.

Therefore a trading range (TR) or tight trading range (TTR) can form either a triangle or evolve into an expanding triangle. If the price range you observe does not show a typical triangle pattern but is a standard sideways consolidation, this is normal because price may undergo either of the above two evolutions, but the essence remains consolidation.

If a gap has never been filled, this is the initial signal suggesting the market may be entering a trending phase.

When price makes a new all-time high, especially when the breakout produces a large-bodied bull bar breaking above the prior high, this often marks a climax, and price usually produces a technical pullback.