When the price moves back and forth within the parallel support and resistance lines, the resulting pattern is a rectangular pattern.
The formation of a rectangular pattern indicates that the price has fallen into a period of consolidation, or hesitation between buyers and sellers, because both want to control the market trend, but no one has the upper hand.
Before the price finally breaks through the rectangular pattern, the resistance and support levels of the rectangular pattern will be tested several times. After the breakthrough trend, the price may continue to run along the breakthrough direction, which may be upward or downward.
When you recognize the formation of a rectangular pattern, please don’t forget the moment when the price breaks through the pattern!
When the price appears in the downward trend for a short period of consolidation, a bearish rectangular pattern is formed. The reason for this pattern is that the seller may need to take a breather before pushing down the exchange rate further.
In this example, the price fell below the bottom of the rectangular pattern and continued the previous decline. If we place an empty order below the rectangular support line, we may get a good return in this transaction.
We have a suggestion: once the exchange rate falls below the support line, the subsequent decline may be equal to the height of the rectangle. In the above example, the drop after breaking the support line exceeds the height of the rectangle, so this time there is a chance to capture more points.
Here is another type of rectangular pattern-bullish rectangle. After going through a round of upswing, the price movement stopped or experienced a short period of consolidation. Can you guess where the price will go next?
If you answer upward, then you are correct! The perfect upward breakthrough market is here!
Pay attention to what the overall price of the price looks like after the price breaks through the resistance at the top of the rectangular pattern. If we place more orders above the rectangular resistance line, we may have already made some profit.
As with the bearish rectangle, once the price breaks out of the pattern, the increase after the breakout will be at least the same height as the rectangle.