How To Trade Effectively With The Rectangle Pattern

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How To Trade Effectively With The Rectangle Pattern
How To Trade Effectively With The Rectangle Pattern

Tiếng Việt

There are many types of pause in each trend. One of them is the Rectangle pattern. This is the type of pattern used by many traders as an effective trading strategy for themselves. Today’s article will introduce you to this special chart pattern. 

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What is a Rectangle pattern? Common types and characteristics of this pattern

Rectangle is the name of a special chart pattern. This pattern consists of 2 levels (resistance and support) that are parallel and horizontal. It often occurs during price trends. Depending on the direction of the breakout, this pattern can be a signal of reversal or a continuation of the trend. 

What is a Rectangle pattern? Common types and characteristics of this pattern
What is a Rectangle pattern? Common types and characteristics of this pattern

Common types of patterns

Based on the position where it appears, the Rectangle pattern has 2 common types which are the Bottom Rectangle and the Top Rectangle.

Top Rectangle

This is a pattern that occurs after the price completes an uptrend and accumulates to build up a Rectangle pattern. 

What is a Top Rectangle?
What is a Top Rectangle?

Depending on the breakout direction, the Top Rectangle can be either a reversal signal or a trend continuation signal. Details are as follows:

Top Rectangle pattern – Upward breakout: Bullish trend continuation signal.

The price breaks out of the resistance and goes up after forming a Top Rectangle pattern. This is a signal that the price will resume its uptrend.

Top Rectangle - Upward breakout: Bullish trend continuation signal
Top Rectangle – Upward breakout: Bullish trend continuation signal

Top Rectangle pattern – Downward breakout: Trend reversal signal. 

On the contrary, when the price breaks out of the support and turns down after completing a Rectangle, this is a signal of price reversal.

Top Rectangle - Downward breakout: Trend reversal signal
Top Rectangle – Downward breakout: Trend reversal signal

Bottom Rectangle

In the second common type of Rectangle pattern, the rectangle locates at the bottom of a downtrend. Similarly, it depends on the direction of the price breakout. The market will reverse or continue with the trend.

Bottom Rectangle
Bottom Rectangle

Bottom Rectangle – Downward breakout: Trend continuation signal. 

After forming a Bottom Rectangular pattern, the price breaks out of the support and goes down. This is a signal that the price will continue to decline. The market continues with the downtrend.

Bottom Rectangle - Downward breakout: Trend continuation signal
Bottom Rectangle – Downward breakout: Trend continuation signal

Bottom Rectangle – Upward breakout: Trend reversal signal. 

On the contrary, when the Rectangle pattern is created, the price breaks out of the resistance and goes up. This is a signal that the market will reverse from bearish to bullish

Bottom Rectangle - Upward breakout: Trend reversal signal
Bottom Rectangle – Upward breakout: Trend reversal signal

Characteristics of this pattern

+ This pattern is only effective when the price hits the resistance and support levels at least twice each.

+ The shortfall: When the price does not reach the resistance but bounces back within the Rectangle. This is a signal indicating that the actual breakout direction will be bearish. The opposite is also true. This means that when the price does not reach the support but bounces back, the actual breakout direction will be bullish.

How to trade effectively with a Rectangle pattern

The Rectangle pattern is widely used in Forex trading by experienced traders. In this article, I will guide you to use this special chart pattern to open Forex and Binary Options orders for maximum efficiency.

For Forex

When using this pattern to open Forex orders, you need to verify entry point, stop-loss, and take-profit. This will ensure safety and optimal profitability for transactions. 

You can open an order when encountering a Rectangle pattern as follows.

Regarding the Rectangular pattern with an upward breakout

+ Entry Point: Right after the candlestick breaks out of the resistance.

+ Stop-Loss: At the support zone of the pattern.

+ Take-Profit: When the price increases (starting from the entry point) by the distance which is equal to the pattern width (Equals the distance between the resistance and support).

How to trade Forex effectively with a Rectangle pattern
How to trade Forex effectively with a Rectangle pattern

Regarding the Rectangular pattern with a downward breakout

+ Entry Point: Right after the candlestick breaks out of the support.

+ Stop-Loss: At the resistance zone of the pattern.

+ Take-Profit: When the price decreases (starting from the entry point) by the distance which is equal to the pattern width (Equals the distance between the resistance and support).

How to trade Forex effectively with a Rectangle pattern
How to trade Forex effectively with a Rectangle pattern

For Binary Options

In this type of trading, you need to be accurate in every detail in order to make a profit. When a Rectangle pattern appears, the retest point after breaking out is a safe entry point for you to open a Binary Options order. 

Requirements: Open an order with a long expiration time (If you use the 5-minute Japanese candlestick pattern for analysis and trading, your order should have an expiration time of 45-60 minutes).

You open an order as follows:

+ Open an UP order when the price retests the resistance just broken of the pattern.

How to trade Binary Options with a Rectangle pattern
How to trade Binary Options with a Rectangle pattern

+ Open an UP order when the price retests the resistance just broken of the pattern.

How to trade Binary Options with a Rectangle pattern
How to trade Binary Options with a Rectangle

One last word

The trading strategy using a Rectangle pattern is safe and very effective. You can test this pattern on an Olymp Trade Demo account. This is a platform that offers both types of Forex and Binary Options (Fixed Time Trades) trading. Open an Olymp Trade account by clicking on the box below. I wish you successful transactions.

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