Guidelines to trade by using Rectangles
In a rectangle, price moves horizontally between overhead
resistance and underlying support
A breakout occurs when price closes outside the boundary of a chart pattern.
Touches There should be at least two touches of each trend line.
A short-term trend lasts up to three months. An intermediate term
or secondary trend lasts between three and six months. A long-term trend or primary trend lasts longer than six months
Tops have price trending into a chart pattern from the bottom,
and bottoms have price trending into a chart pattern from the top
The price velocity leading to and exiting from a chart pattern are often similar even if the direction is reversed.
Undershoot or overshoot
Both undershoot and overshoot occur before a chart pattern begins. Undershoot happens when price briefly dips below
the entrance of a chart pattern. Overshoot happens when price briefly soars above it.
A rectangle forms because
traders want to own the stock at two fixed prices, one low and one
high, setting limits (for a time) on how far price moves.
Prices trend up to the formation and then
oscillate between two horizontal trend lines
before breaking out upward.
Measure the height of the rectangle from trend line to trend line.
For upward breakouts, add the height to the top trend line; for
downward breakouts, subtract it from the bottom trend line. The
result is the minimum expected move. For a maximum price
target, measure the length of the rectangle and extend it vertically
above the top trend line (for upward breakouts) or below the
bottom one (downward breakouts). The price becomes the
maximum expected move.
Wait before place forex trading signals for breakout Since you cannot be sure in which direction a rectangle will break
out, wait for prices to close outside the trend line before fx trading
in the direction of the breakout.
Tall rectangle scalp If the rectangle is tall enough, sell or sell short near the top trend
line and buy or cover near the bottom one.
Watch for rectangles forming as the corrective phase of a
measured move up formation and adjust the target price
accordingly. Rectangle reversals sometimes appear as flat top
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