The very first trade is an intraday pattern of a 5 minute bar chart that is called „dip and rally“ setup for a buy breakout.

The consolidation at the high of the day is considered to be the key to the success of this setup. This is also true for other pattern variations. This is very good if the consolidation is very long and tight. This is a setup that can be developed all trrading day long.

There is also another pattern, that is more obvious. It looks like this:

Another intraday consolidation pattern that you can see on the below illustration looks a little different. It can be a powerful setup:

In the setup #3 depicted above, an active stock can show a tremendously illiquid intraday bar chart. The most important for this chart pattern is to make sure the stock averages good volume on a daily-basis (for example, 100k shares +), and that the daily bar chart shows good space tor movement to the upside with nearby price resistance. You can also keep tabs on its volume in the market maker screen.

The next chart is another well known example that leads to consolidation and a wonderful breakout trade:

Early morning consolidation (similar to pattern #2) can be an important part of entering trades at the start of the trading day (remember though that it is best to wait about 10 minutes before you enter a trade). This way you can catch the first and best breakout. If you are following a particular stock with the expectation of a good move on the day (or simply stumble across one with the following pattern), it may be considered a strong trade candidate. This is especially true if your market maker screen is moving and showing momentum coming into the breakout. The pattern consists of just a few bars on the morning and a range of only a 1/8 to 1/4.

The point in this pattern is to catch the earliest breakout and the best price. Of it was not possible, then pass up the trade. You should never chase a stock.

Once a breakout takes place, the stock normally spikes out of the consolidation to begin a strong move. If you miss the initial breakout, other consolidation opportunities may setup in the stock as the day progresses. For example:

There is no doubt the first breakout is the best one to take. The question arises though, whether you should take the second, third, fourth, etc… breakout. If you missed the earlier breakout(s), how do you know whether or not to take the next one? The best way is to know how long the overall market has been moving in a direction, and if it is losing steam. Also, consider the average daily range of the stock as welt as the strength (momentum) coming into the breakout. If the stock often trades a two to three point daily range, then the subsequent breakouts may still have scalping potential if the range on the day is, for example, only 1 and 1 /8 points at that time. Simple looking at the daily historical chart will show whether the price is breaking out of a daily consolidation area and if daily support or resistance has been broken. This can often lead to a large magnitude move and a stronger initial price Spike, even if the last few daily bars have been in a narrow price range. Again, the longer the consolidation on the 5 minute bar chart, the better the trade.

Trade setup #7 depicts two good trade entry points following extended consolidation. Consider both of them. The second breakout to the downside could also be traded.

„Wedging“ consolidation on the 5 minute chart, especially if it develops over the first 1 to 2 hours of trading, can precipitate strong breakout moves. This pattern usually sets up for a trade on the long side Consolidation at the high of the day must be present and hugging the upper price boundary as the wedge pattern unfolds. Here is the buy setup: