Entry Models - Part 4: Rectangles

My bread and butter setup.

Rectangles aren’t really rectangles, as price never has any vertical resistance or support, and price can’t move back in time while it progresses automatically forward in time. So what rectangles really are, is a quick way to draw two levels with a single tool. Rectangular contractions form when price is locked in between a support and a resistance level.

If you understand what to look for, rectangles are everywhere.

These contractions form very often, and are basically the primary tool of level to level traders. If you take some time to study their criteria, they combine easily with other technical analysis and allow you to capitalise on their breaks.

For example, here is one that formed around my number 2 entry model:

And here is another one that formed around a flag.

Rectangles by themselves are break out patterns. From these two examples you may already have seen that sub-patterns form and provide sniper entries, while other breaks rely heavily on a successful retest. Sniper entries can turn out to be just scalps, and are very aggressive entries, especially because they often form in the choppy parts of the consolidation. The confirmation is always when the level breaks, and the probability of immediate follow depends for the most part on market conditions and the trend during which the sniper entry is given.

For example, if the above flag was a pull back in a strong uptrend, the buy would look like this:

Whilst during converging trends, it would be wise to wait for confirmation:

The Rectangular Model

Range bound EMA50 consolidations on the M5 (5 minute) timeframe are by far my favourite setups out of all of them. I call them the M5 EMA50 in short, and this is the kind of setup that allows us an entry into the forming of a brand new EMA9 trend, which means a significant expansion away from the setup.

This is one of my two bread and butter setups, and just this simple model is enough to make a living from day trading. All it requires, is a little patience while the parameters set up, and discipline as price has to start leading.

Let’s have a detailed look at these parameters and criteria: