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Chapter 14, Part V. Rectangles. Page 3

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 21, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    4. It is better does not try to anticipate the direction of a breakout and enter on some retracement after a breakout has happened. For instance, as on chart #1 – here you can see a nice retracement back to the lower border of the rectangle. Stop should be placed above the middle of the rectangle range, or even above the highs that point on the middle of the range – like on chart #2. Here is black dash line shows not only middle of rectangle but also it builds on highs that mark this middle.

    5. Also you may apply the same rules of trading as with a wedge pattern. It will allow you to open a position before breakout, if and only if the market shows you clear signals – some patterns inside the rectangle, support of trend, if market couldn’t reach the opposite border of rectangle and returns right back etc.

    6. If the market moves above/below the middle of rectangle and consolidates near upper/lower border, then it is more probable that a breakout will happen in the direction of this border – up/down. On chart #2 you can see that after the big rectangle, the market turns to a small one, but couldn’t move above the middle of big rectangle. This should tell you two important moments. First, the bulls are weak, since they can’t move market higher, second, the market is building up energy, because now t stands in a much tighter range, it’s like a compressed spring. So, we know that the energy is high, and the market tends to decompressing, and we know that this release should be down, because the market couldn’t move above the middle of big rectangle.

    I hope these simple rules will help you to deal with rectangles. Market behavior is very logical. If it becomes non logical, then it means that somebody skewed it. It’s better to stay aside during such moments. Also it confirms again, that a stop loss order is a must.

    P.S. This lesson was written by Sive Morten, who has been working for a large European Bank since April of 2000, and is currently a supervisor of the bank's risk assessment department. Sive's knowledge of forex market and banking industry is vast and quite complete. If you have any specific questions about forex, banking industry, or any other financial instruments, please post them on the next page and Sive should answer soon.

    Note: FPA ranks are earned in the battles against scam, not in the classroom.
    Hamza Samiullah likes this.
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