GLOSSARY // Day Trading
Consolidation
Consolidation is a compression phase after a directional move: price narrows into a tightening range as the market digests the move, volume contracts, and neither side presses. The prior trend is on pause, not necessarily over.
Where the consolidation forms carries information. A stock holding within 1-2% of its high after a big run means holders are not selling into strength, which favors continuation; that structure is the base of a bull flag. A sloppy, wide consolidation that keeps losing VWAP suggests distribution instead. The resolution, a break of the range on expanding volume, is the trade.
A stock runs from $30 to $36 in the first hour, then spends ninety minutes between $35.40 and $35.90, a band of about 1.4%, on steadily declining volume. When it breaks $35.90 on a volume surge, the measured continuation targets the $37.20 area.
Related terms
Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.