Forex Trading Basic

How to Use Rectangle Chart Patterns to Trade Breakouts

News Trading Strategies

Rectangle Chart Patterns to Trade Breakouts

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.

ow to Use Rectangle Chart Patterns

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!

Bearish Rectangle

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.

ow to Use Rectangle Chart Patterns

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.

 ow to Use Rectangle Chart Patterns

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!

Bullish Rectangle

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?

ow to Use Rectangle Chart Patterns

If you answered up, then you’re right! Check out that nice upside breakout right there!

ow to Use Rectangle Chart Patterns

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.

Chapter 5

Technical Analysis in Forex Trading

Lesson 1Types of Technical Analysis Indicators
Lesson 2Forex Trading Trendline Analysis
Lesson 3Forex trading Chart Patterns
Lesson 3.2Double Tops and Double Bottoms
Lesson 3.3Head and Shoulders Pattern
Lesson 3.4Rectangle Chart Patterns
Lesson 3.5Triangle Chart Patterns
Lesson 4Japanese candlestick Trading Strategy
Lesson 4.2Japanese candlestick Trading Strategy Part 2
Lesson 5Support and Resistance Levels
Lesson 6Types of Technical Analysis Indicators
Lesson 6.2moving averages Technical Analysis
Lesson 6.3MACD Indicator Technical Analysis
Lesson 6.4RSI Indicator Technical Analysis
Lesson 6.5Stochastics Indicator Technical Analysis
Lesson 6.6Technical Analysis with Bollinger bands Indicator
Lesson 7Fibonacci Retracement Forex Strategy
Lesson 8Forex Trading Pivot Strategies

Go back to Main Page: Forex Trading for Beginners

About the author

Syed Nazim

Syed Nazim is the Marketing Manager of RedMaroon, a Digital Marketing Agency for Financial Institutions. He is also involved with Forexing24.com as a writer and financial Analyst. He is a brilliant marketing geek with vast experience in every sector of Digital Marketing. He likes sharing strategies, tactics and proven methods to help you build a business and live the life of your dreams.

Add Comment

Click here to post a comment

Your email address will not be published. Required fields are marked *


Topics

forexing24-ad-1

forexing24-ad-2

  • analystfx-small.jpg
  • analystfx-small.jpg
  • medium.jpg
  • medium.jpg
  • medium.jpg
  • medium.jpg

Recommended Forex Broker

  • banner-300x250-gif-animation-2.gif