Continuous Forex Chart Pattern: Rectangle
The rectangle pattern is formed when the price moves between support and resistance lines several times, touching both at every opportunity. This support and resistance line is usually a horizontal line but may have an upward or downward angle, forming a channel. Regardless of whether the line is horizontal or italics; they should be parallel rectangular lines formed as the price moves up from the support line (1) to the resistance line (2), then returns to the same support line (3) and eventually returns to the previous resistance line (4) which bounces up to the fourth point in rectangle. The rectangle pattern can also form when the price moves from the resistance line to the support line, then back to the resistance and finally back to the support line. Four times is the minimum number of points required for the rectangle, with two points touching the upper resistance line and two points touching the lower support line. If the price does not bounce from the fourth point, but through the channel, then the rectangular pattern has not yet formed.
In reading the rectangle pattern, the main entry signal for the rectangle is waiting for the breakout price (piercing out the rectangle pattern). If the price breaks either the support or resistance line, trading is in the direction of the breakout, with a stop loss protection right inside the rectangle pattern. The price movement breaks through the rectangle pattern validated as the volume increases during breakout. Volume must be at least 33% to 50% higher at breakout; Otherwise it may be a false breakout.
You can also trade in a rectangle pattern. You can buy on the support line, with a protective stop loss just below the support line and your price target is in the resistance line. Or you can sell on the resistance line, with a protective stop loss just above the resistance line and your target price is on the support line.
The height of the rectangle pattern can be the price target when trading in the rectangle pattern and is the minimum price target when trading breakouts. When the price exits the rectangle pattern, take the high rectangle and project it towards the breakout price. This is the minimum price projection. The maximum price projection is the rectangle width from the first point toward the breakout.