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Chapter 14, Part V. Rectangles.

Discussion in 'Complete Trading Education- Forex Military School' started by Administrator, Jul 7, 2011.

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  1. Administrator

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    Part V. Rectangles. [​IMG]
    [​IMG]

    Commander in Pips: A rectangle is a relatively simple pattern. It forms, when the market stands between horizontal bounds – support and resistance, and the market, in turn, stands between them for some time. Usually price makes some touches of support (lower border of rectangle) and resistance (upper border of rectangle) before it continues its move in one or the other direction:

    Chart #1 | 4-hour GBP/USD. Rectangle
    [​IMG]

    So, here we can see a rectangle that leads to reversal on the market. But there are continuation rectangles as bullish as bearish exist also. A rectangle mostly an “indecision” pattern, and the major importance here belongs to the direction of breakout and price ability to hold in this direction.

    [​IMG]

    On Chart #1 you see, that the market has shown strong downward breakout and held there. As result, the breakout leads to a down move. Before that has happened – price jumped between borders several times. Although there are some strategies that exist to tell how to trade inside rectangle, in the beginning of your trading journey is better to think outside of the rectangle if you’ve suddenly recognized it. Just wait for a breakout and then for retracement to enter in the breakout direction. This will allow you to place a tight stop and have an easier estimate of the moment when your position will become wrong.

    Pipruit: Ok, I see.​

    Commander in Pips: Now a couple of words about bullish and bearish rectangles.

    Bearish rectangle forms when some downward price’s move precedes the appearance of the rectangle. Then price consolidates for some time inside the rectangle body before th down move will continue. This happens, because sellers need to take a pause – may be some sellers partially fix profit; others use small pullbacks to enter the market. Intraday speculators use these moves to earn some short-term profit. But then when market makes a decision, all participants finish with arrangement of their positions and the market continues the move down.

    Commander in Pips:As you can see on chart #2 it’s hard to see a perfect rectangle. More often you will meet blur and choppy consolidation. Here by the way you can see that after a large rectangle, the market was trapped in a smaller one.


    Chart #2 | Weekly CAD/USD. Bearish Rectangle
    [​IMG]
     
    #1 Administrator, Jul 7, 2011
    Lasted edited by : Mar 27, 2016
    knight270 and Hamza Samiullah like this.
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