Rectangular Formation is one the formations that can be noticed easily. It demonstrates a rising-falling market between the two lines. Development generally continues as a general tendency of the period before the rectangular formation. Rectangular formation indicates a station which hasn’t a fix trend direction in the market. When prices are rising or falling, the market faces a reaction of an opposite direction. The rectangular formation is occurred as a result of these flows. It is defined by a horizontal channel which stays between the movements. For example: The realization movements in the market.
What is happening by the Rectangular Formation?
If the rectangular formation is happened in a certain trend, the formation generally returns to the previous trend. The prices move in the uptrend, break the upper line and rise to the point in parallel with the length of the rectangle. They continue to rise as previous trend before the formation. Also prices in the down trend break the underline and fall as much as the length of the rectangle. Then prices continue to falling.
The Simplest Formation
The Rectangular Formation is the simplest formation. You can see them as triple hills. They look like triple hills but there can be some differences. The peak and the trough points may not be at the same level like the triple hills. The lines of the rectangular are used to indicate the resistance and the support levels in order to determine purchase and sale points. Rectangular formation is the standstill period in the trend. At any point of the trend, the demand and supply are equal. The prices stay between the two horizontal lines and begin to stop there (the area in the rectangular) for a while. Because of this area’s feature when the formation ends, the prices will be at the same tendency which trend has before the formation.