I would like to open this discussion with my understanding of Areas of Consolidation (AOC) and how we can use them to identify high probability, low risk trades. Much of that which follows is drawn from principles described by Niall of LTTTM and Sam Seiden, I'm simply aiming to consolidate () those principles to our methodology.

Supply and Demand.

The methodology employed by Sam Seiden is based on identifying areas or levels in the market where there is an imbalance between buyers and sellers that causes price to move either higher or lower. Those imbalances are the fundamental reason for price movement and are identified here by our EA.

The Players.

Seiden identifies two market participants, Institutions and Retail Traders. The Institutions are sophisticated, professional traders with massive accounts. The Retail Traders are unsophisticated, amateur traders with small accounts. The Institutions make money by buying at wholesale (low) prices and selling at retail (high) prices or, selling at retail prices and buying at wholesale prices. The Retail Traders consistently transfer their wealth to the Institutions because they make the same mistakes time after time.

1. They buy or sell after a period of buying/selling
2. They buy or sell at, or into, a level of supply or demand.

In other words, the Retail Traders buy high (retail) into Supply and sell low (wholesale) into Demand which is the opposite of the Institutional traders.

Areas Of Consolidation (AOC's).

AOC's occur when price is contained between supply and demand, forming one or more inside bars until such time as it can form a new directional move. AOC's can form at swing high/low's and initiate long term directional moves or, mid trend during a period of Mean Reversion following which price continues in the direction of the trend. Niall uses AOC's as one of his trading set ups, you'll recognise them as the "Fakey" which he looks to enter at key levels of support/resistance or, with dynamic support/resistance from Exponential Moving Averages (EMA's). Niall recently won a trading competition and took home the first prize of $1,000,000.00 which is testament to his methodology and skill as a trader. Congratulations Niall!!

Niall primarily uses momentum to enter Fakey setups. In a bullish Fakey, entry is at the high with the expectation that price will move up, trigger the trade and continue higher. The opposite is expected for a Bearish Fakey. While there is no disputing the effectiveness and profitability of Niall's methodology, I've always felt uneasy about buying the high of a bullish fakey or the low of a bearish fakey. I always felt like I was getting in late and carrying too much risk.

For me, entering at the high in a bullish fakey is buying after a period of buying (mistake 1) and into a level of supply (mistake 2). On the other hand, the Major Fakey that Niall teaches, where there is a false break of the MB low is gold. Again, Niall uses momentum to enter at the high but if we can identify these AOC's before the false break, we can enter at the low in a Bullish move or at the High in a Bearish move therefore reducing risk and increasing profit.