Time to look at one of the most geometrically correct trading pattern there is.
Why would a chart be stuck? Well is usually comes after the up or down trend and it happens because traders can’t make up their minds of what to do next – sell or buy. There are two types of the rectangle patterns – bearish and bullish.
With them it is essentially a waiting game to see where the chart is going to break further.
Let’s look at the bullish first.
Here. We can see that after the climb the price has to slow down a bit for traders to understand what has to be done next. And the answer is usually to BUY as the price is only going to go up from here.
And in this case just like with head and shoulders the price is initially going to pop up the same heights as was the height of the pattern.
This is the pattern that is best used with the long order on the top of the resistance level as there is a perfect possibility to catch some pips there.
Now time for the bearish rectangle.
Again, we can see that the price was going down and traders needed to catch breath and wait for just a moment before making matters worse for the couple.
In this case it is better to long or short the couple below the support level – duh!
So, essentially both of the patterns are used in order to mark the continuation of the trend as we can see with these examples. They are not used to determine the reverse trend, but rather the continuation of the existing one.