freemexy: What Makes The Rectangle Chart Pattern So Important?
What Makes The Rectangle Chart Pattern So Important?
Did you know that the market is stuck in a range most of the time？ In other words, you will see the rectangle chart pattern 70% of the time. This leaves trends to form the other 30%. Hence it is important to know the significance of the rectangle chart pattern.To get more news about WikiFX, you can visit wikifx official website.
A rectangle occurring after a trend is normal. Rectangles are resting areas. This is an area where the bulls and bears are unable to overcome one another, resulting in a trendless situation.
Identifying The Rectangle Pattern
Given that rectangles are areas of rest, they should ideally be narrow and tight as shown in the chart below.
Did you notice that the horizontal lines of the rectangles act as support and resistance？
Prices may pierce through the support resistance lines, but the general rectangle pattern is still well respected.
A rectangle can last for as short as a few minutes. Currency traders look for rectangles that last between minutes and days.
Besides varying in duration, rectangle chart patterns also vary in height.
A rectangle is like a base of a building. A larger base will be able to support a larger building. Therefore, a larger rectangle will be able to support a larger price move when prices move beyond the rectangle.
The larger the candles within the rectangle, the longer the pattern stays in a rectangle. The move following the breakout of the taller rectangle tends to be larger. The size of the above rectangle is 45 pips . Price hovered within the rectangle for 2 days and 6 hours before breaking out of the rectangle.
At market lows, banks and large commercial companies will be accumulating (buying) the asset and this can occur within the rectangle pattern.
At market tops, banks and large commercial companies who had bought the currency pair while it was cheap will slowly distribute (sell) to uninformed speculators.