The rectangular price pattern is based on the very important ability to identify support and resistance. It can provide consistent returns in a small trading window. This guide aims to show you how to recognize the pattern and how to correctly apply it when trading on Quotex.
How to recognize rectangular price pattern
Let's talk for a moment about the market ranging. Prices are going up to a certain point only to fall to another specific point. A higher price creates a resistance level and a lower one provides support. They are strong enough that once the price hits them, it just bounces back without breaking a resistance or support.
Support and resistance are created by adding lines parallel to each other. The support line will be created by joining at least two funds. The resistance line will connect at least two tops. Take a look at the 30-minute DAX chart below.
The rectangle pattern is noticeable when the trend is coming to an end. This suggests a change in the direction of the trend.
Therefore, the time when you can identify price consolidation will be at the top of an uptrend or at the bottom of a downtrend. And what it is saying is that the directional move is over and the trend is ready to reverse. At this time, prices do not exceed or fall below a certain level.
What to do when the rectangular price pattern appears
In most cases, it is easy to recognize the pattern of price boxes once it has been developed. But do not worry. You can still earn some profit to take before the new trend starts.
The first step you should take is to draw the support/resistance lines. So keep an eye out for times when the price hits the lines. When it is the support line, you should open a buy position. In case you touch the resistance line, open a sell position.
We recommend using the large timeframe chart when trading short term trades. If, for example, the chart you are trading on is a 30-minute chart, open 5-minute trades. So, you can be sure that the price will stay within the rectangle and not recover before the trade expires.
What to do when the price breaks the support or resistance level
You should prepare for the moment when the price will break the support or resistance level. It will happen, sooner or later. Watch the direction the price is going after the breakout and trade accordingly.
If the price breaks the resistance level, as in our exemplary chart below, you should enter a long position as the uptrend is developing.
You can read more about trading after the price break in our guide.
The pattern of price boxes lasts for a while and during this period the price goes up and down within a certain range. And finally, when the price momentum is considerably strong, it breaks the barrier. You may notice some signs that this is going to happen. The candles, for example, are longer and the same color. Thus, you are entitled to expect the market to continue moving in the direction of the breakout.
And consider all the above, you can enter the trade according to an evolving trend.
Now that you know the rectangular price pattern, you can start using it. Practice on a free demo account and then switch to the real Quotex account. However, always be careful that this strategy is not a magic formula for success. You will likely face losses as you can never completely eliminate risk when dealing with the financial market.
Share with us your experience.
