Good morning, traders…

Yesterday, I showed you how market structure and trend analysis provide a crucial foundation for directional options trading. 

But what happens when the trend disappears?

You’ve seen it before: a stock bounces back and forth between two levels, not making any big moves up or down…

This is known as rangebound consolidation. And if you see it, you shouldn’t trade it.

We’ve all been tempted to trade during a sideways stretch because it feels like something should happen soon…

The chart might look like it’s coiling up, and maybe you’re thinking, “I can get in early before the massive breakout.”

But this is a mistake. Directional options thrive on movement and die with stagnation. 

Buying options during consolidation is like bringing a surfboard to a lake. 

Right tool, wrong setting. 

Let’s Unpack Why Sideways Charts Are A No-Go, What To Look Out For, And How To Recognize When Consolidation Is Happening…

Why Consolidation Kills Options Trades

Options love movement. They’re designed to gain value when the underlying stock makes a big push in the right direction. 

But when a chart is stuck in consolidation, the price doesn’t go far enough in either direction to let your contracts soar.

And this is where timing makes things even trickier…

Think of your options contract like a melting ice cube. With every passing moment, a little bit of that value drips away, whether the underlying stock moves or not. 

This is time decay, especially brutal when the stock price is stuck in a tight range.

In a consolidation phase, there’s no big move to offset that slow, steady loss. Time decay doesn’t care that you’re waiting for the stock to wake up — it’s constantly nibbling away at your option’s value. 

For traders, this can be a frustrating and costly lesson. Even if you guessed right about the stock eventually breaking out, the time decay might have already eaten through your potential profit by the time it does. 

That’s why knowing when not to trade is so important.

When you pair the melting ice cube of time decay with the stock’s lack of movement, buying options during consolidation becomes a recipe for disaster. 

Recognizing Consolidation

How do you know when a stock is consolidating? 

Look for these warning signs:

Flat or Rangebound Movement: The stock bounces between a clear support and resistance level without breaking out.

Low Volume: Trading volume typically dries up during consolidation because the excitement is elsewhere.

Short Candlesticks: You’ll see smaller candles on the chart, showing a lack of strong price movement.

If you see a chart that looks like this…

…you shouldn’t buy options until you see a key level break. 

What to Do Instead

When you spot a sideways chart, your best move is to wait. 

Consolidation can signal that the market is gearing up for a bigger move, but guessing which way it’ll break isn’t trading — it’s gambling. 

Instead of anxiously hopping into a trade during consolidation, do the following:

Wait for the Breakouts and Pullbacks: Let the chart tell you where it wants to go. Once the stock breaks through resistance on heavy volume — or pulls back to support on lighter volume — you’ve got a clear signal to act based on reliable pattern recognition. 

Follow the Smart Money: Use my scanners to find stocks with huge Smart Money volume and strong trends. 

Trading options during consolidation will get you stuck in boring, frustrating, account-draining trades.

Save your money (and opportunity cost) for setups where the trend is on your side and the chart has a clear direction. 

Patience is your greatest virtue. Wait for a clear breakout or pullback. 

Then strike with utter conviction. 

Happy trading,

Ben Sturgill

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