Good day everyone, how are you all doing?
It has been a wonderful week so far here in Crypto Academy because we were able to learn lots of things about the blockchain world and to me personally, it has been an eye-opener. We are now in W4S5, this week's course is about Trading Using Rectangle Pattern, thanks to professor @sachin08 for taking his time to explain the course deeper for all students to understand.
The rectangle pattern is a pattern that is usually showcased on a price pattern, these patterns are mostly formed when the horizontal support and the resistance level are the same each time we have an upward rise in the market or downward. The market price is limited to the movement between the two horizontal levels and making a rectangle.
The main idea behind the rectangle pattern is to help marketers to be able to see and identify the level of support and resistance many times before the market experience a breakout, when the breakout extend beyond the rectangle then it can be said to be trending toward the direction of a breakout, the breakout can take place in any direction. A rectangle tends to be called a failed rectangle when the market price experience a breakout in an upward direction, then not long after fall back into the rectangle.
The image above shows that the rectangle pattern is a narrow range rectangle and this type of rectangle pattern mostly leads to a trend continuation, this might also cause a strong trend reversal mostly when it goes on for a period of time. This type of long-range rectangle can cancel out the strength of a prior trend because, in this kind of situation where the trend drags out for a long period, it makes the marketers that are already in the market doubt the strength of the trend.
As we know, the rectangle mostly occurs when the market price moves around the horizontal support level and also the resistance support level, which shows that it's not easy for marketers to identify the rectangle price chart, because the rectangle pattern can only be found either at the top of the chart or the bottom of the chart, which also explains why marketers find it hard to identify the rectangle pattern. For marketers to identify the rectangle pattern, the first thing to consider is to look for a market pattern that forms a range in the market, which means that the price pattern of the market most not go beyond the support or the resistance line, that is if the rectangle is for the top, for the bottom rectangle the same law is to be applied to it. With this it can be seen that the bull and bear pattern are both in control of the market situation, none are in full control of the market.
To grasp the rectangle pattern accurately, another step you take is to draw a horizontal line at the top and bottom of the chart which will help indicate the right pattern the market is taking, when the pattern touches the top line shows the support line while when it touches the bottom line, it shows the resistance line, this trend needs to systematically touch both the top and bottom two to three times to shows the rectangle pattern is well taking.
The image above shows the connection of the rectangle pattern touching both the support and the resistance line, along the line they tend to be a breakout in the market price which can also go either towards the bull pattern or the bear pattern, but in the image above shows that the breakout in price trend towards the bull pattern.
Yes of course traders can add different types of indicators because, with the indicators, it becomes easier for traders to identify the right trendlines that the market price is taken and with it, they will be able to identify the rectangle pattern in the market and also make an accurate in buying or selling.
The image above shows that half trend indicator was included in the chart, the half trend is a two-way indicator which helps traders in highlighting the possible route the market price will take for that period time, in the case of the image above, the red arrow indicates that the market is likely to fall towards the bear pattern while the green arrows indicate that the market is also likely to rise towards the bull pattern.
When traders add the indicator with the rectangle pattern, they will be able to make a more accurate analysis when deciding the right pattern the market price will take and this will also save many traders the loss of assets necessary, this will also help the marketers to make more profit than loss.
As we know the rectangle chart pattern is a chart pattern that takes shape when the market price moves along the horizontal line which entails the resistance and support line, this way they tend to be a reputation in the movement of price in the market, which also caused the pattern to for the rectangle pattern.
The movement of the price pattern which moves in a horizontal line mostly follows a certain pattern which is an upward and downward movement, this movement is what we call the rectangle top and the rectangle bottom.
Rectangle Top
In the situation of the rectangle top pattern, the market price is always initiated from bellow the chart pattern, then along the line the market price makes a peak, then it will experience a fall in price which will meet with the downward movement in price, after that the market price will shoot back it's initial peak again, with this they will be some stability in the market because the market power is in between the buyers and the sellers where both parties are dragging it out with each other, along the line the market tend to experience a breakout, in the case of the rectangle top, the breakout tends to lead the market price towards the bearish pattern, in order to have strong stability then within the rectangle line, they tend to be two or more peaks which can help to stabilize the price chart in the market.
Now from the image above, we can see that the market price moves in a zig-zag direction, where the trend of the market moves from top to bottom and always maintains the balance of the fall and rise of the pattern before the market breakout, after the breakout, we can see that the market trends towards the bear pattern more than the bull pattern.
Rectangle Bottom
The bottom rectangle pattern can be seen as a pattern that can be found at the bottom of the price chart which is formed because of the range in the market, in this situation the buyers and the sellers are not in total control of the market, because of the strong resistance that shows up along the price pattern, shows the strong possibility for the market price to rise towards the bullish pattern after the breakout.
From the image above, it can be seen that they are a strong attractive force for the market price to rise towards the bullish pattern after the breakout, also the market was not fully controlled by either the buyers or the sellers, which also means that the market is not been controlled by the buyers nor the sellers.
For this question, I will be showing how to make a transaction entry for both the top rectangle and the bottom rectangle.
Trade setup using Rectangle top
The image above, shows the transaction of BTCUSD, from the chart we take our rectangle pattern from a position where the price pattern fluctuates between the bull pattern and the bear pattern where the price chart moves horizontally along the resistance and the support line. On the chart, the first breakout happens around 46948.53, after that the market experienced a sudden downward movement in price, then when I noticed that they are stable in the direction of the market, I decided to take my first entry point at 47021.93, after taking the entry point, I decide to make my stop loss at 48123.46, so that when we have any fluctuation in the price pattern the market won't be affected much, after which I took out my profit
Trade setup using rectangle bottom
From the image above, it can be seen that the entry point and the breakout point is quite different from the one we take in the rectangle top, here we can see that the price was taken at the bottom side of the rectangle where the price chart moves along a horizontal line where it has the resistance and the support line to help in maintaining the balance, in this case, we take the breakout at 19973.11, after that we can see that the market chart suddenly shoots towards the upward trend, then we take our entry point at 20828.87, in order to have a perfect entry I decided to set my stop loss below the entry point which is at 19338.83, after that, I decided to wait for the price chart to make a stable stand in the market in order to take my profit, after a while I decided to take my profit at 24201.24, which shows that I make a high profit in the market.
Conclusion
From this lecture, we were able to learn how the rectangle pattern takes form and also we were able to learn how to make use of the rectangle pattern, we were also thought how to use an indicator along with the rectangle pattern, which really helped me a lot in my trading analysis because I was able to have a better view of how the price chart pattern moves in the market more accurately, all thanks to professor @sachin08 for his wonderful teachings on rectangle patterns, he was able to enlighten me more on the topic and also his explanation was very straight forward. Thank you and God bless you.