Consolidation patterns (ascending triangles, rectangles, and descending triangles) are forms of continuation patterns. These patterns usually indicate that the sideways price action on the chart is nothing more than a pause in the prevailing trend and that the next move will be in the same direction as the trend that preceded the formation.

Consolidation patterns can be identified when high (or low) prices tend to develop a straight line over a period of several days or weeks. Example of consolidation patterns are shown below:

Consolidations can also occur at the end of downtrends as shown in the chart below:

Look Back Period:

Consolidation patterns can develop over several days or weeks. The default settings will identify short-term consolidations. Longer consolidations require a greater look back period. It is best to experiment with this setting and you will soon find securities that meet your criteria.

Analysis Performed On:

You can perform this analysis on High, Low or Closing prices. If you are searching for shorting opportunities, use Low prices, if searching for long positions, use High prices. Stock Filter provides complete flexibility, allowing you to experiment with various settings.

Price Tolerance:

In order to identify consolidation patterns, prices should be fairly consistent over the time period selected. Using the above default values, a price tolerance of 1% (assuming analysis is performed on High prices) means that during the look back period, prices must be within 1% (+/-) of today's high in order to score a positive value. It is advisable to create separate filters for higher priced and lower priced securities, as a price tolerance of 1% may be fine for a $10.00 security, but may be too generous for a $60.00 security. Setting this value too loose will identify securities that are not really in consolidation patterns. For higher priced securities, you may want to set the tolerance level to say .50%. Again, we recommend that you experiment with the settings.

Minimum Number of Positive Tests:

This selection determines how many times prices must be within the tolerance level. In the above default setting, a security will pass the consolidation test if High prices are within the tolerance level 5 times during the look back period. Selecting a larger number here will usually identify "tighter" consolidations. Make sure the number of positive tests does not exceed the look back period or no results will be generated.