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Consolidation Phase: What It Is, Examples

In information technology, specifically storage terminology, consolidation refers to the concept of centralized storage. The oversupply triggers a wave of mergers, acquisitions, and bankruptcies. Cross-border digital traffic has grown 40 times larger since 2007 and is projected to grow exponentially in the next five years.

We will explain how consolidation works and strategies you can leverage to trade it successfully. NAS provides a single-purpose device that provides NFS (Network File System) and CIFS (Common Internet File System) connected storage. Many organizations are facilitating server consolidation by deploying NAS. The Capital Ideas newsletter delivers weekly investment insights straight to your inbox. Consolidation delivers economies of scale but can make it harder to react nimbly to new competition or shifts in technology.

Corporate consolidation has gained pace steadily since the global financial crisis, driven by a combination of cheap money and balance sheets boosted by a strong stock market. Although the sheer number of deals is not new, the size of the deals is historic and creating dominant companies. As a wave of mergers and acquisitions has swept the business world in recent years, more industries https://www.day-trading.info/how-to-choose-stocks-for-day-trading/ have come to be dominated by just a few massive companies. In many sectors, competitors have joined forces to build scale and drive innovation amid mature growth. Some businesses may find that their synergies are well-suited for consolidation. If not addressed, it can be problematic for the company’s management and, ultimately, its shareholders if the company is public.

  1. So we move on to trading in a larger time frame like daily, then we can avoid price consolidation which usually occurs in smaller time frames.
  2. These are similar to the phases of the economic cycle, which are expansion, peak, contraction, and trough.
  3. The oversupply triggers a wave of mergers, acquisitions, and bankruptcies.
  4. Because prices are really stagnant or unstable, the market is indecision.
  5. By understanding the concept of price movements and their characteristics, it allows traders to anticipate these conditions with suitable strategies.

Just like company types, there are many different kinds of business consolidation. It all depends on the strategy, the desired outcome, and the nature of the businesses involved. Each of these items can increase top-line revenue and company valuation in order to improve corporate fundamentals and make shares of their stock more attractive to investors. When a price consolidation happens, the what is algorithmic trading in forex price trades sideways for a brief period, after which it either continues in the direction of the prevailing trend, or reverses in the opposite direction. However, there is always a transitionary period between bullish and bearish cycles. Such a period is often called a “consolidation”, where the market is showing signs of indecision with regards to the direction of the price going forward.

Financial markets are constantly evolving, which is shown by the moving prices of financial instruments, such as stocks, currency pairs, futures contracts, cryptocurrencies, etc. And in implementing a strategy, it is absolutely necessary to keep discipline with trading rules that have been determined by traders. The next way to identify consolidated markets is to monitor breaks in swing high/low patterns in the trend.

Consolidation – definition and meaning

Almost traders, me included, who rely on technical analysis will usually look for support and resistance levels in the price chart. Then taking into account the price ranges formed by market consolidation. Consolidation in technical analysis refers to an asset oscillating between a well-defined pattern of trading levels. Consolidation is generally interpreted as market indecisiveness, which ends when the asset’s price moves above or below the trading pattern. In financial accounting, consolidation is defined as a set of statements that presents (consolidates) a parent and subsidiary company as one company. Periods of consolidation can be found in price charts for any time interval, and these periods can last for days, weeks, or months.

Consolidation: Support vs. Resistance

In late maturity, companies may begin to consolidate as organic growth slows and they look for ways to increase their market share and juice their growth. During the introduction phase, a company or many companies may be working hard to introduce a new product or service into the mainstream. The industry life cycle is the process by which an industry develops, grows, and eventually becomes https://www.topforexnews.org/news/asian-stock-markets-us-futures-sink-after-fed-s/ extinct. The phases of the industry life cycle are introduction, growth, maturity, consolidation, and decline. To better illustrate how market consolidations work, let’s look at an example of Apple stock and its price chart, highlighting the consolidation zones. But some traders use large timeframes, say on a daily basis to determine the consolidation range formed by support and resistance.

The market usually alternates between bullish and bearish trends, allowing investors and traders to take advantage of opportunities as they arise. Most professional traders avoid the condition of market consolidation because it is less profitable. We know that market consolidation can occur in all timeframes, but not all market consolidation conditions in all of these timeframes will be effective for trading. Once we start seeing price behavior that is different from trends, then we can start asking ourselves whether prices will be consolidated or not. Market consolidation also often occurs in connection with major economic or political news releases. This happens before the release of the big fundamental news that is a high impact.

The consolidation wave has swept up many industries.

When a trend movement dies down, buyers and sellers will take the opportunity to adjust their exposure to the market. If the price action is not as rewarding, investors and traders may sell their positions and exit. As buyers and sellers move in and out of the market, they set the stage for their next move. For our context, consolidation is a technical analysis term referring to an asset that is neither reversing nor continuing a larger price trend. In other words, the asset’s price is trading within a given range, or trading sideways.

It’s the job of professional investors to identify the ones that will succeed and prove to be good investments over the long term. As a result of the push for corporate mergers, many industries in the MSCI All Country World Index now are dominated by just a few big companies. Periods of consolidation are when new traders entering the market decide whether to go long or short, to buy call options or put options, etc.

Learning ways to identify and trade in consolidation will allow you to effectively manage your trading strategies and make money under various market conditions. When the stock breaks out above resistance, the standard trading technique is to buy long and cover short positions. Some conservative traders may wait for confirmation through analytical tools or price action. Breakouts usually get accompanied by a rise in volume, indicating more buyers than sellers in the market. They can lead to significant gains or losses in a short time, especially if there was a prolonged consolidation.