In trading, consolidation is a period when an asset price trades sideways within a tight range, neither trending up nor down significantly, as buyers and sellers reach temporary equilibrium. During consolidation, volatility decreases, trading volume typically declines, and price oscillates between defined support and resistance levels. Consolidation phases allow markets to digest previous moves and build energy for the next directional breakout, either continuation of the prior trend or reversal.
Example:
Bitcoin rallied from $60,000 to $85,000 in three weeks, then consolidated between $82,000 and $88,000 for six weeks as early buyers took profits and new buyers accumulated. Volume dropped 40% from the rally peak, and daily price swings compressed to 2-3% instead of 5-10%. Technical traders recognized this as consolidation, a pause rather than a reversal. After six weeks of sideways action, Bitcoin broke above $88,000 on increasing volume, signaling the consolidation ended and the uptrend resumed. Those who bought during consolidation ($82,000-$86,000) captured the next leg up to $110,000.