Forex Rectangle chart pattern

A Rectangle or Box is a continuation pattern and describes a price pattern where supply and demand seems evenly balanced for an extended period of time. The currency pair moves in a tight range, finding support at the rectangle's bottom and hitting resistance at the rectangle's top. Rectangle patterns are also known as Trading Ranges, Consolidation Patterns, Flat Base and a Sideways Pattern.

Look durations work best for this pattern. The potential price target is usually considered to be the same height as that of the rectangle. A pattern over 3 weeks is a good indication. A 3 month duration is expected to meet the breakout potential (height of the rectangle) while a 6 month pattern can exceed the breakout target.

Validate and draw a Rectangle Pattern

There should be a minimum of 4 reversal points to draw 2 parallel lines. Two equal peak for resistance and two equal valleys for support. In addition the distance between the two peaks and valleys should be almost the same. This indicated a valid rectangle pattern.

Caution on how to Trade the Rectangle Pattern

Note: You should note that while the breakout is likely in the same direction as the previous breakout, it could also go the other way.

So when trading on a rectangle pattern, it is best to trade both ways, with a stop-loss on each side. Irrespective of which side it move you make a killing on one direction that will easily cover the small loss on the opposite direction.

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