So let’s define a box. Very early in the thread I originally defined a box here
a series of at least three candles where the highest high and lowest low of the first two candles form the upper and lower range of the box and the third candle’s high and low form within that range. That range should ideally be between two to three pips only.
Let’s evolve that definition. A box now has 3 components. An X-A leg, a run leg and a range.
The X-A leg will define the box as a scalp box or a trade box. It is formed over a number of bars denoted as “n” where the first bar and last bar form the high and low of the box. The number of bars “n” defines the box. So if the X-A leg was 5 bars, we would call it a 5 bar box pattern. If the X-A leg formed over 21 bars, we’d call it a 21 bar box pattern. Scalp boxes form when the X-A leg is low, only 1, 2, 3, possible 4 bars. Range boxes form over much larger periods.
The run leg must satisfy two conditions. First, it is formed over a minimum number of bars calculated as “n” multiplied by a factor. That factor is up to you to work out. For the moment, we’ll use a favorite number of mine and the one I’m using in the indicator, 0.618. Look familiar. It should. Using Fib times has a whole new meaning on tick charts. So a 5 bar box must have a run leg of at least 3 bars, the 21 bar box must have a run leg of at least 13 bars. If we set our factor to 1.618 a 5 bar box would now need at least 8 bars to form. The 21 bar box would need a run leg of at least 34 bars to be valid. There is no maximum to the run leg, as long as the second condition is met. That’s pretty simple. The highest high and lowest low of the run leg must be within the boundary set by the high and low of the X-A leg. Once those levels get broken the pattern is immediately void.
The final factor to determine the validity of a box is a range. The difference in price between the highest high and the lowest low expressed as pips or points. I’ll use pips because I’m working with a 4 digit price feed. Scalp boxes for in a very narrow range. 3 pips to be precise. We’re trying to identify when market negotiations stall. Remember each tick represents one transaction that has moved the price by a digit. For each transaction, that achieves that there could be much more simply occurring at a price smaller than your broker’s feeds. My understanding is price can be negotiated down to at least 18 digits in the real world of the “exchange”. When negotiations stall within this narrow range, liquidity has temporarily left the market with the players not prepared to commit to forcing price direction. The real players see this and are ready for action. You need to be as well. For as soon as this range breaks price will move quickly in the direction of the break. But beware of the fakey. The real players are a nasty horrible group of people and will do anything to get the edge. And they run at least 1/2 a second faster than we can every hope for.
Range boxes form over a larger range but within a maximum. The tighter the better. Personally, I like to see a range less than 13 pips but have the indicator set up to identify ranges of up to 21 pips. When the market enters one of these supply zones, liquidity again tends to dry up. Small volumes of money are been exchange and price bounces back and forth forming these swing highs and lows. Very hard to trade from. But when liquidity returns price quickly moves with it, breaking the range opening up trade opportunities.