BEARISH RECTANGLE PRICE ACTION
This chart pattern starts forming with bears already in control of the exchange rate's downtrend. When bulls enter the market, a consolidation period starts and rate gets contained within a specific range, where bulls are creating a resistance at a certain rate, and bears are creating support at a certain rate as well. Bears then break that consolidation, and the exchange rate continues its downtrend.
Let's break down the pattern formation!
In a downtrend, price action finds the first resistance (1), which will be the horizontal resistance for the rest of the pattern formation.
Price action reverses direction from the first resistance (1) and goes upwards till it finds the first support (2), which will be the horizontal support for the rest of the pattern formation.
Price action reverses direction from the first support (2) and goes downwards, till it finds the second resistance (3), which will be around the same rate of the first resistance (1)
Price action reverses direction from the second resistance (3) and goes upwards, till it finds the second support (4), which will be around the same rate of the first support (2)
The pattern is completed when price action reverses direction from the second support (4) and goes downwards till it breaks the rectangle's lower border at point (5)
Entry: after breaking the rectangle's lower border at point (5), either with an entry after the breakout, or after a possible retest of the lower border.
Take profit: identified by measuring the vertical distance between the rectangle's upper and lower borders, that measurement is then applied from the breakout rate (5)
Stop loss: the rectangle's lower border, which is a resistance that turned into support after the breakout.
This chart pattern starts forming with bears already in control of the exchange rate's downtrend. When bulls enter the market, a consolidation period starts and rate gets contained within a specific range, where bulls are creating a resistance at a certain rate, and bears are creating support at a certain rate as well. Bears then break that consolidation, and the exchange rate continues its downtrend.
Let's break down the pattern formation!
In a downtrend, price action finds the first resistance (1), which will be the horizontal resistance for the rest of the pattern formation.
Price action reverses direction from the first resistance (1) and goes upwards till it finds the first support (2), which will be the horizontal support for the rest of the pattern formation.
Price action reverses direction from the first support (2) and goes downwards, till it finds the second resistance (3), which will be around the same rate of the first resistance (1)
Price action reverses direction from the second resistance (3) and goes upwards, till it finds the second support (4), which will be around the same rate of the first support (2)
The pattern is completed when price action reverses direction from the second support (4) and goes downwards till it breaks the rectangle's lower border at point (5)
Entry: after breaking the rectangle's lower border at point (5), either with an entry after the breakout, or after a possible retest of the lower border.
Take profit: identified by measuring the vertical distance between the rectangle's upper and lower borders, that measurement is then applied from the breakout rate (5)
Stop loss: the rectangle's lower border, which is a resistance that turned into support after the breakout.