Rectangle Chart Patterns to Trade Breakouts
A rectangle Chart Pattern is a chart pattern formed when price is bounded by parallel support and resistance levels. A rectangle exhibits a period of consolidation or indecision between buyers and sellers as they take turns throwing punches but neither has taken over.
The price will “test” the support and resistance levels several times before eventually breaking out. From there, the price could trend in the direction of the breakout, whether it is to the upside or downside.
In the example above, we can clearly see that the pair was bounded by two key price levels which are parallel to one another. We just have to wait until one of these levels breaks and go along for the ride!
Remember, when you spot a rectangle: THINK OUTSIDE THE BOX!
A bearish rectangle is formed when the price consolidates for a while during a downtrend. This happens because sellers probably need to pause and catch their breath before taking the pair any lower.
In this example, price broke the bottom of the rectangle chart pattern and continued to shoot down. If we had a short order just below the support level, we would have made a nice profit on this trade.
Here’s a tip: Once the pair falls below the support, it tends to make a move that is about the size of the rectangle pattern. In the example above, the pair moved beyond the target so there would have been a chance to catch more pips!
Here’s another example of a rectangle, this time, a bullish rectangle chart pattern. After an uptrend, the price paused to consolidate for a bit. Can you guess where the price is headed next?
If you answered up, then you’re right! Check out that nice upside breakout right there!
Notice how the price moved all the way up after breaking above the top of the rectangle pattern. If we had a long order on top of the resistance level, we would’ve caught some pips on the trade!
Just like in the bearish rectangle pattern example, once the pair breaks, it will usually make a move that’s AT LEAST the size of its previous range.
Please note that: Successful Technical Analysis largely depends on the functionalities of the MT4 Platform provided by your broker. If you are new in forex trading, you might consider reading the article on what is the best trading platform, Introduction to MT4 Platform and MT4 Platform functions. We have used a fully functional MT4 platform provided by HYCM Broker. Read why their MT4 platform has better trading conditions from the HYCM Broker review.
Technical Analysis in Forex Trading
|Lesson 1||Types of Technical Analysis Indicators|
|Lesson 2||Forex Trading Trendline Analysis|
|Lesson 3||Forex trading Chart Patterns|
|Lesson 3.2||Double Tops and Double Bottoms|
|Lesson 3.3||Head and Shoulders Pattern|
|Lesson 3.4||Rectangle Chart Patterns|
|Lesson 3.5||Triangle Chart Patterns|
|Lesson 4||Japanese candlestick Trading Strategy|
|Lesson 4.2||Japanese candlestick Trading Strategy Part 2|
|Lesson 5||Support and Resistance Levels|
|Lesson 6||Types of Technical Analysis Indicators|
|Lesson 6.2||moving averages Technical Analysis|
|Lesson 6.3||MACD Indicator Technical Analysis|
|Lesson 6.4||RSI Indicator Technical Analysis|
|Lesson 6.5||Stochastics Indicator Technical Analysis|
|Lesson 6.6||Technical Analysis with Bollinger bands Indicator|
|Lesson 7||Fibonacci Retracement Forex Strategy|
|Lesson 8||Forex Trading Pivot Strategies|