The 60 min boxes are periods of consolidation within the 60 min time frame. It is very useful for traders to help them know the short term movement of stocks. Since the boxes are consolidation areas, the trader can use it to aid his or her support and resistance analysis of a stock. Support and resistance are extremely important to short term traders. Stocks can often stop dropping at congestion areas. Stocks can also stop rising at resistance areas. The 60 min boxes will be a very useful tool for the trader to know about possible reversal areas in the stock.
The concept behind the 60 min box is very similar to the daily Nicolas Darvas Box Method Chart Pattern. I have written in depth about this chart pattern and you can read about it to strengthen your understanding of the 60 min Box. They are both the same pattern but they appear in different time frames.
The above diagram shows the construction of the 60 min boxes. There are basically 2 variation of boxes. The first one is the wide volatile box and the second one is the tight box. The volatile box have more erratic movements while the tight box have a more orderly and tighter movement. Despite this difference, they both share the same characteristics. Both have relatively same highs and same lows which the trader can use to draw a box.
The trader should always remember this when drawing a box:
With regards to the 3rd and 4th one, it can be confusing at first but the thing here is to imagine in your mind that a box has formed. Don't worry, I will explain it with charts below so you can understand.
The chart above shows 4 boxes that I have drawn across the 60 min chart of CERN. The first box appeared from 22nd August to 30th August 2017. This box satisfies our criteria of having the same lows and same highs. It has more than 10 trading bars and it is the longest box that I have drawn on this chart.
The second box appeared from around 1st September to 6th September 2017. It is a bit shorter than the first box but it still satisfies our criteria. The 3rd box appeared right after the 2nd box and it is even shorter in duration. The last box is a box that is made up of same lows but of different highs. The trader needs to imagine that there is a box there and you do not need to have the price pattern to have all same highs and all same lows.
All that is needed are same lows or same highs.
It is important for the trader to realize that all the boxes that we are going to draw in a chart are all imaginary. In reality they do not exist. We just draw them there so that we are able to see price action clearly.
Boxes which are made up of congestion areas can be support and resistance areas for stocks and indexes. Thus they are actually reference areas for the trader. Because traders that trade the smaller time frames need to be very accurate with their timing, these support and resistance areas in the 60 min charts are very valuable.
Many times, a stock or an index will stop rising when they hit the resistance areas and they can often stop dropping and reverse back up with it hits support in the 60 min charts.
For a primer on support and resistance I recommend that you click on the link to read the introduction to support and resistance.
The chart above is the 60 min chart of DIA or the ETF that tracks the Dow Jones Industrial Average. Boxes are excellent for traders to analyze support and resistance in the indexes. If you look carefully at the DIA, you can see that there are many congestion areas that you can draw boxes across.
Some congestion areas a wider and more erratic but they can still be contained within a nice box. Other boxes are very tight areas that you can draw a box. The bigger the congestion area, the better it will act as support. That means, the more price action there is within that congestion area, the better the area will act as support or resistance in the future.
That's because the bigger the congestion, the greater the battle there is between the bulls and the bears. Therefore, the area will have more significance. A box that is made up of 30 bars have more weight than boxes that area only made up of 15 bars.
If you look at the chart of DIA above, do you notice how price started to reverse back up on September 25th when it touched the support area? So far the DIA has not dropped significantly into any boxes but in the future if it corrects, the boxes that I have drawn will act as support that will keep the DIA from dropping. At least they will make it difficult for the DIA to crash straight through them.
The chart above is the 60 min chart of AAP. I have drawn a few boxes that are made up of congestion areas. Notice how the first box acted as a support when the stock corrected to that area? The second box acted as a resistance when the stock tried to rally higher on September 25.
The chart of ADM above also shows how boxes can act as resistance areas in a downtrend rally. The stock topped out, formed a consolidation and broke lower to start a possible 60 min downtrend. ADM tried to rally back up but quickly found resistance and continued to move lower.
Remember when I said that boxes are battles between bulls and bears? Boxes are also a reference area isn't it?
Therefore, the direction in which the price breaks out of the box will most likely send the stock chugging along in that direction.
In the 60 min chart of Apple above, I have drawn a few boxes across congestion areas. In the first box, Apple traded sideways and eventually broke above it. This told us that the bulls have won the battle and the likely direction for the next few trading bars should be up.
The second box appeared in early September. This time, the stock broke below the box and this told us that the bears have won this struggle. Therefore, the likely direction that Apple would go in the next few trading bars would be down.
Another box formed around the 19th of September. This time, the stock also broke below the box and hinted of more selling in the stock.
Does this work all the time?
Of course no. It will be foolish to think that this analysis works all the time. If it works all the time there will be no false breakouts. What this method gives the trader is a simple tool to see where the stock is likely to move in the short term.
It also takes some time to learn how to correctly draw a box.
You need to practice and learn how to spot boxes and imagine the boxes there. Do not simply draw a box across a wide are or across any congestion area. This is reading too much into the stock chart. You need to be realistic and learn how to draw a nice simple box.
Let me show you another chart. The chart above is the 60 min chart of ABBV. Once again, I have drawn 2 boxes to make it easier for you to see. In the first box, the winner was the bulls. The stock broke higher out of the box and therefore the likely direction for the next few trading bars will be up.
The second box was also won by the bulls. Therefore, the bias for the next few trading bars will be for the bulls. ABBV rose higher after it broke out of the second box.
What you have learned is how to gauge the probability of which direction the stock is likely to move in the short term. There are no certainties in the stock market. But with enough practice at spotting boxes, you will increase the probability of knowing the short term direction correctly.
It is not easy to learn to use boxes. Like every discipline in technical analysis, it takes time and experience to be able to master this tool. When you are able to fully utilize this simple little technique, it will open up a whole new way to analyze stocks that you have never known. It will also help to increase your accuracy and trading profits.
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