Whenever, I realize that we are in a consolidation period, I like to identify what was the price action direction prior to the consolidation. In this example, you had a strong impulsive move up, followed by this multi-day range behavior. Taking a few other factors into account, there is an increased likelihood that price action will eventually break out and continue in that same direction.
Context really is king. During a range-bound environment, as an intra-day trader, I enjoy looking for sells near the highs of that range and buying opportunities near the lows of that range. However, something was a little different today.
Now, we are not here to make predictions. We are here to read price action and react to it. The market leaves clues if we are observant. As I watch price action, I ask myself “has anything changed”?
On days 1-3 (see pic above), price action had a range of about $2.50-2.75 per day with around $2.00-$2.50 moves during the overnight session. This was already half of the recent Daily Average True Range - signaling “tighter” trading conditions. Upon looking at price action at the start of day 4 (today), notice that price action only moved about $1.00 during the overnight session. In my head, I thought, this is getting REALLY tight. We also have stayed very high up in the range, during the entire overnight session. Go back over the last couple of months and see how many days CL would consolidate in this way before having a big breakout. Was a breakout imminent today*?
*Of note - this pic was taken after the breakout - but you will see the execution chart shortly
