One of the most effective market timing strategies is trading breakouts from tight consolidation ranges. The reason that this methodology works is because markets tend to move from periods of low volatility to periods of high volatility and back again. This is the natural market cycle; it is the way the market breathes.
A market will typically consolidate as accumulation or distribution is taking place, and then quickly move into a markup or markdown phase as the supply and demand imbalance begins to tilt. From my experience, it is much easier to predict volatility shifts then it is to predict actual price movement.
Once you are able to recognize this ongoing phenomenon in the markets, you can position yourself to take advantage of these repeatable occurrences. Keep in mind that the markets are made up of traders, and traders are people who have emotions and feelings. As such, these human emotions leave behind a footprint in the form of patterns that can be seen on the charts by the trained eye.
Today, I will discuss one of my favorite patterns for consolidating trading breakouts in Bitcoin. This trading breakouts strategy combines 3 technical studies – the 89 period SMA, the Bollinger Bands, and the Keltner channel. We will briefly discuss each of these components and then look to combine them to create a solid breakout strategy.
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