RECTANGLES

Binary option traders looking for continuation patterns should include rectangles in their searches. A rectangle, also known as a consolidation pattern, often occurs in the middle of a trend and is commonly believed to indicate the resumption of that trend upon the breaking of the pattern. The idea is that traders are resting during consolidation patterns, which often occur on low volume, and when they come back to their desks they will resume the buying–or selling–that was taking place before their break.

Technically, a rectangle occurs when price reaches a new high before pulling back to an intermediate support level. The pattern continues with the continual testing of both the new high and the intermediate support level. Each level must be tested at least twice for the pattern to be considered a genuine rectangle. As price bounces between these two levels, it trades sideways for a period of time and forms a horizontal price channel.

Traders can trade range-style or no-touch binary options while this pattern occurs, because the support and resistance levels will hold price in a predictable range for a little while. They can also use above/below options to profit from the likely breakout that will occur in the direction of the prevailing trend. Again, rectangles that form in the midst of an uptrend foretell the continuation of that uptrend, and ones that form in the midst of a downtrend foretell the continuation of that downtrend.

It is important to note that rectangles, as with all continuation patterns, do not predict with 100% accuracy that the prevailing trend will continue. Therefore, any breakout of a rectangle that occurs with substantial trading volume should be considered the direction that price will head, at least temporarily, even if it is in the opposite direction of the prevailing trend.