Dealer Layout Pattern - Box

The box is composed of a horizontal trend line connecting two parallel troughs and a horizontal resistance line connecting two parallel peaks. Generally, the range between the horizontal trend line and the horizontal resistance line is referred to as the box. The horizontal trend line is called the bottom of the box, and the horizontal resistance line is called the top of the box.

The characteristics of the box are as follows:

1. In a bearish market, the rectangular consolidation is a resistance pattern during the price decline; the longer it lasts, the higher the probability of a further decline. In a bullish market, the rectangular consolidation is merely a correction pattern during the price rise.

2. The consolidation period of the box pattern is considered a medium-term consolidation; its formation time is longer than that of triangle, flag, and other consolidation patterns, generally lasting at least 30 trading days.

3. The breakout of the box is marked by the closing price reaching the upper or lower boundary of the rectangle. After a price breakout, sometimes a pullback occurs to confirm whether the breakout is valid; subsequently, the price continues to move in the original trend direction.

4. In an upward trend, the trading volume will significantly increase upon breaking out of the box pattern; in a downward trend, a downward breakout does not require a significant increase in trading volume.

When investors encounter a box consolidation pattern, what operational strategies can they employ?

1. Once the box pattern is initially formed, investors can take advantage of the support line below and the resistance line above the box. They can buy at the lower boundary of the box and sell near the upper boundary, engaging in short-term trading back and forth.

2. Once the box forms a valid breakout, careful decision-making is required. In an upward trend, if the box breaks out with volume, investors should firmly hold onto their assets waiting for appreciation; in a downward trend, if the box breaks downward, they should quickly cut losses and exit.

3. The theoretical height of the box breakout is usually equal to the height of the box itself, i.e., measuring the price at an equal distance from the upper boundary of the box either upwards or downwards, which represents the theoretical target price when the asset rises or falls.

In actual operations, investors need to pay attention to the following two points:

1. When the price retraces from the top of the box to the bottom, the trading volume should gradually decrease; when the price rises again, the trading volume should increase.

2. Short-term investors should enter and exit quickly, treating the bottom of the box as a stop-loss point, and should promptly cut losses when the price falls below the bottom of the box.