Rectangular price model (Rectangle) is one of the common patterns in stock price charts and forex .... This is a continuation pattern. If the price is in a trend then when the Rectangle pattern appears it is often highly likely that the price will then resume the trend.
Describe the rectangular pattern in the price chart
When appearing in a trend, this model is similar to the flag pattern, because it also has a "flag handle". The main difference is that the price in the rectangular model will be in two horizontal lines (support and resistance) rather than two sloping lines. the difference.
Rectangles can be at the top or bottom or the middle of a trend. However, it can appear when not in a clear trend.
To be confirmed as model of rectangular price (rectangle) then it must have at least two equal vertices (or approximately the same) and at least two equal bases (or approximately the same). When connecting two equal vertices will form a horizontal resistance line, which is also the upper edge of the rectangle. Connecting two equal bottoms will create the edge of the horizontal support line, which is also the lower edge of the rectangle.
Psychological movements in the price model of rectangle
The appearance of a rectangular pattern in a trend is often the result of a price pause. Once formed, the price will usually break the pattern and continue the trend.
Basically, both the buyers and the sellers have faith in their analysis. At the same time the power of the two sides is now equal. Both sides want to trade at the optimal price to minimize losses or achieve the best possible profit.
Technically, when prices form the first peaks and troughs, day traders will take advantage of small market fluctuations to try to reap the smallest profits. But day traders often buy support and sell at resistance. They continuously traded at such support and resistance levels, forming a force in the market, contributing to the formation of a rectangular model.
Instructions on how to deal with the rectangular model
When a rectangular pattern appears it will create opportunities for traders to make a profit. It is important that you have a good plan, trading strategy and discipline. There are two trading ways to make a profit with this model.
Method 1: Transactions within a rectangle to make a small profit
This method applies to day traders - Those who trade frequently during the day, taking advantage of the smallest fluctuations to make a profit. The principle is simple: Buy at support and sell at resistance. Of course, stop loss should always be placed near the support level and above the resistance level
This strategy works better in the forex market compared to the stock market. Because in forex trading, traders can buy before or after to sell before buying. Moreover leverage in forex is also more comfortable to use (for example Exness floor leverage up to 2,000 times - two thousand times!). High leverage allows traders to gain large profits even though the market only needs small fluctuations.
Method 2: Trade when price breaks out
Although the rectangular pattern is a sign of continuation of the trend, it only means that the probability is high. In the market, any possibility is possible. Many traders will wait until the price breaks out of the pattern (Break out) in a certain direction before starting to act.
When prices break a pattern, it's not always straightforward. In many cases, prices will turn to retest support (which is the initial resistance level). If the test succeeds, the price really goes forward.
How to enter an order and set a Stop loss
- Immediately after determining the price has broken out of the model, you place a small order. Just placing a small order in case it is fake Break out will be less damage. If the price goes forward, at least you can get a little profit. Remember to set the stop loss for this order just below the support level (which is the old resistance level).
- If the price returns to test the new support level, place a small order just above the support level. The reason for adding this order is because it has a better price than the first order, and the damage is less if it does not go as expected. But remember, it's only a small order, because to prevent it is fake Break out.
- If the price goes to support and then goes up, you wait for the price to go beyond the level at which it turned around. At this time the probability of going up again will be very high and you can place a big order to make more profit. And remember to set stop loss for all orders.
In order to trade well this way, I recommend reading the following tutorial carefully:
How to take profit with a rectangular pattern
For effective profit-taking, you need to look at the bigger picture to identify support and resistance levels. Also depends on the basic factors. Within the scope of this model, we will have a profit-taking level that is close to the height of the rectangle.
Real price chart of rectangles
In the previous sections, you have only seen the most basic and clear forms of the rectangular price model. In reality, however, things are often not so obvious. It requires your graphical experience to be able to look at effective rectangular models. Here are a few price charts for you to look at.
The picture below: The rectangle pattern continues the upward trend
The picture below: The rectangle pattern continues the downtrend
Image below: Reverse rectangle pattern
Figure below: Unclear rectangle price pattern. The peaks and troughs are not necessarily within the horizontal lines of support and resistance.
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Author: Pham Khuong
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