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In this video, we're talking about rectangle tops and bottoms, so a rectangle, top or bottom is a
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pattern that, as I'm sure you can guess, is shaped like a rectangle.
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And what happens is that support and resistance comes into play at the same two levels and then you
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eventually get a break out of it.
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And the idea is that in the case of a rectangle top, you're rallying into it and then you break down.
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It's a reversal.
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It becomes a rectangle shape top to the market.
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If you are falling and you get a rectangle consolidation area and you break out of it to the side,
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it is a rectangle bottom, pretty straightforward.
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And they happen on all time frames.
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So you see them quite a bit.
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It's just simply consolidation that doesn't lead to continuation, rather a reversal.
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So let's go ahead and draw a rectangle here and the Litecoin market.
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Now, how you will trade this is one of two ways, most of the time you will either take a measurement
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and most people do it this way, you'll take a measurement and you'll aim for the exact same height.
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So from eighty dollars to seventy six dollars is where you're looking at here.
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Well, 80 minus 76 is four dollars.
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So once you break out of 76, you're looking for a move down to 72, something that you clearly hit.
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However, some traders, you know, with their stop loss are behind here.
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Adjust this now, this is the way you're typically taught, but a lot of traders will, if they have
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to risk this for this, well, that's a one to one trade.
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They don't want that.
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They want more.
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So they aim for double.
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And in this case, clearly you've gotten it because remember, you want to risk one to gain to minimum,
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preferably three or four, but.
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As this breaks down, they will move their stop loss to break even once you get that one to one and
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then they'll let it run or they'll just let it run like that.
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An alternative is to set a stop loss at half the height and then aim for the four dollars here, the
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height of this trade.
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And that gets you back to one wrist for two dollars.
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Etherial.
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You can see that there was a couple of rectangles here on the hourly chart, and you will get them more
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frequently, obviously on shorter time frames, but there should be no doubt that those were both profitable
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trade because you're only looking for twice the move are twice the height of the rectangle for the move.
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Clearly, that was not an issue.
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You can see that support breaks.
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The reverse of that recent trend tends to be pretty brutal.
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And again, you should be able to get twice in a continuation move.
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There are already a lot of people on this side of the move in this case going higher into this, so
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that would be one reason to think that maybe the momentum isn't going to be as quick.
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You'll probably be more apt to get the occasional pullback.
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Now, keep in mind, this is on the hourly chart.
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So, you know, you need to look for quicker moving indicators, you can see where you got a crossover
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here, signal crossover in the Makdisi both times.
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And then by the time we broke down, we were starting to scream towards the zero line.
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So that would have been something that would have caught your attention.
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Furthermore, on the second one, this would have been an area where we had seen resistance recently.
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So you can see how using some of these indicators can give you an idea as to, OK, not only is the
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pattern setting up, not only have we, you know, in this case broken through support or broken through
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resistance on or on a rectangle bottom, but now you have people who pay attention to Magdy D, paying
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attention to it, et cetera, et cetera.
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In the next video, I'll be talking about head and shoulders, one of the trading community's favorite
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patterns.
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