This image explains supply and demand behavior in price action trading, showing three key scenarios that often occur in consolidation zones:
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1. Retest
Pattern: Price breaks out of a consolidation zone, then retests the zone before continuing upward.
Interpretation: This confirms the breakout; it’s often seen as a strong bullish sign.
Strategy: Traders often enter on the retest, placing stop-losses just inside the zone.
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2. Breakout
Pattern: Price breaks out of the consolidation and continues moving up without a retest.
Interpretation: Indicates strong demand; buyers are aggressive.
Strategy: Entry is typically immediate post-breakout, but with a bit more risk due to no confirmation.
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3. Fakeout
Pattern: Price breaks out of the zone but then quickly reverses back into the range.
Interpretation: False breakout—can trap breakout traders.
Strategy: Experienced traders might wait to confirm whether it’s a true breakout or a fakeout before entering.
