The rectangular price pattern is structured in a way to identify both support and resistance. This way, it can provide you with a profit in a tiny trading window. This guide will help you to recognize the pattern and also learn how to apply it perfectly while trading on Binomo.
How to recognize the rectangular price pattern?
Let’s start with the flat market, commonly referred to as the ranging one. Here, the price moves back and forth between a higher price and a lower one. A higher price level is known to create resistance, while a lower one provides support.
Support occurs when the downtrend is expected to pause due to the demand concentration. On the other hand, resistance arises where an uptrend is expected to break temporarily due to a concentration of supply.
Both support and resistance are considered very strong such that each time the price reaches them, it bounces back without breaking.
Support and resistance are formed by adding lines that are parallel to each other. The support line is created by joining at least two bottoms, while the resistance level is formed by connecting at least two tops. An example of the chart can be seen in the image below.
So, price consolidation can only be spotted at the top of an upward trend or the bottom of a downward one. And this means that the direction the trend was moving to has been finished, and it is ready to reverse. When the market is at this point, the prices do not exceed or fall below a certain threshold.
What to do when the pattern appears?
Usually, it is always straightforward to notice the rectangular price pattern once it occurs. You should start with drawing support and resistance lines. Then be on the lookout for when the price hits the levels.
When the price hits the support line, this is a signal to open a buy position. On the other hand, when it touches the resistance line, you should open a sell position.
It is recommended to use a large time frame chart for short-term trades. For example, if you use a 30-minute trading chart, you can open a 5-minute trade. This way, you are assured that the price will keep inside the rectangular bloke and will not rebound before the trade expires.
What to take when the price overcomes support and resistance?
You have to always look out for the direction in which the price is heading and trade accordingly. In cases where it breaks the resistance level, you should always enter a buy position, as the trend is developing upwards.
When the price momentum increases in strength, the price breaks the level. Observing the signals will clearly show you when the barrier is about to be broken. For example, in the chart above, you may notice that the candles are the same color and become longer when moving toward breaking the resistance line. Therefore, you can be sure that the price will keep advancing toward the breakout direction.
Conclusion
Now you know how to trade according to the rectangular price pattern. However, always be on the lookout, as this strategy, like any other, is not 100% successful. Only study and practice can reduce the risk of losing capital. It is advisable to practice on the Binomo demo account before moving to a real one.
