The rectangle strategy it’s both a continuation trade signal as well as a reversal trade signal.
However, they are more powerful if used as a continuation pattern because you have the force of the trend working for you
Keep in mind that this trading system doesn’t have a bullish or a bearish bias as they are neutral patterns when they develop. You’re not going to know which way it’s going to break until it does but, the high probability trade will always be in the direction of the prevailing trend.
How to draw the bearish rectangle pattern?
There are two requirements that need to be satisfied to be able to draw the rectangle formation:
Step #1: Identify the prevailing trend before the rectangle trading pattern. For Sell Orders, we need a downtrend.
Step #2: Identify the rectangle trading pattern. The price action needs to move horizontally between support and resistance.
Step #3: Wait for a false breakout above rectangle resistance line.
why is the false breakout important to the Rectangle chart pattern strategy?
The false breakout does two things:
Step #4: Sell at the closing candle that generates the Rectangle Breakout.
Step #5: Take Profit target can be 2-3 x times the rectangle price range as measured from top resistance to bottom support.
Step #6: Place the protective stop loss slightly above the Rectangle Resistance level.
However, they are more powerful if used as a continuation pattern because you have the force of the trend working for you
Keep in mind that this trading system doesn’t have a bullish or a bearish bias as they are neutral patterns when they develop. You’re not going to know which way it’s going to break until it does but, the high probability trade will always be in the direction of the prevailing trend.
How to draw the bearish rectangle pattern?
There are two requirements that need to be satisfied to be able to draw the rectangle formation:
- First, we need an established trend because the big money is made when it’s used as a continuation pattern.
- Secondly, we need to have at least two equal (or near the same) lows and highs to draw two horizontal lines at should contain the price action.
Step #1: Identify the prevailing trend before the rectangle trading pattern. For Sell Orders, we need a downtrend.
Step #2: Identify the rectangle trading pattern. The price action needs to move horizontally between support and resistance.
Step #3: Wait for a false breakout above rectangle resistance line.
why is the false breakout important to the Rectangle chart pattern strategy?
The false breakout does two things:
- First, it stops out those traders who went short in the direction of the prevailing trend and placed their stop above the most recent resistance level.
- Secondly, it traps some buyers who take the resistance breakout trade.
Step #4: Sell at the closing candle that generates the Rectangle Breakout.
Step #5: Take Profit target can be 2-3 x times the rectangle price range as measured from top resistance to bottom support.
Step #6: Place the protective stop loss slightly above the Rectangle Resistance level.
wait for below 300 closing