Rectangle
Price walks between two horizontal boundaries. Inside a corridor like that, someone is usually building a position.
Rectangle — what it is?
A rectangle is movement between two horizontal boundaries. In classic analysis it is a sideways market; in Smart Money it is a range.
Classic logic suggests trading from the boundaries inward. That works until the boundaries become obvious to everyone.
After that the rectangle turns into a trap: stops are stacked behind both boundaries, and a move beyond either of them followed by a return back inside is the most common scenario.
Rectangle — how it is built?
The boundaries are drawn by the full range of the candles. Then the quartile grid goes on top of the rectangle and it reads as a range: the middle is equilibrium, the edges are alarm levels.
Rectangle — common mistakes
Mechanically buying at the lower boundary and selling at the upper one.
Taking any candle that pokes outside the boundary as a break: without a close it is more often a poke.
Ignoring that a range is a phase of accumulation or distribution, not a pause.
Trading inside the range against the higher timeframe direction.
Related to
Glossary
- range
- movement inside a horizontal corridor with no clear direction.
- candle
- the element of the chart that shows four prices for a period: open, high, low, close.
- The quartile grid
- splitting a zone into quarters: 0, 0.25, 0.5, 0.75, 1. The boundaries serve as readiness levels, the middle part as the area to look for an entry.
- equilibrium
- the middle of the range, the 0.5 level.
- close
- the last price of the period. Considered the most important of the four: breakouts are confirmed by the close.
- Poke
- stepping beyond a range boundary and returning inside. The same thing as Wyckoff’s spring and UTAD.
Test yourself
Where is the market standing in a range?
Correct. The app has tasks like this in every lesson — 119 lessons on real charts. Solve in the app →
Not this one. The right answer is the other chart. The app has tasks like this in every lesson — 119 lessons on real charts. Solve in the app →