Trading With
Rectangle Pattern
Pattern
rectangle or rectangles is one of the movement patterns that signaled the
forwarding direction of the trend (trend continuation). Although not always
forward direction of the trend or sometimes it could be a reversal trend (trend
reversal), but the case of trend continuation is more frequent that it is more
likely. This pattern appears when the condition trends are strong, and at a
time trend movement stalled and consolidate the resistance level and support
specific form rectangle pattern.
In this case
the majority of buyers is causing the price moves up or seller that cause
prices to move down to close the position to buy or sell her to take advantage.
However, after some time buyer or the seller re-entry and the trend of price
movement resumed. Formation of this rectangle pattern similar to the pattern
flag, the difference is the consolidation period is longer.
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| Trading With Rectangle Pattern |
There are
two types of rectangle pattern, bullish and bearish rectangle.
Rectangle pattern formed at the end of the uptrend is called a bullish
rectangle, and formed at the end of the downtrend is called bearish rectangle.
In practice the consolidation phase in the rectangle pattern need not be a
straight horizontal channel, but can be somewhat skewed or angular shape as
shown above.
Trading with
a Bullish Pattern Rectangle
If the price
moves sideways uptrend and then change (ranging) then it is likely to form a
bullish pattern rectangle, that is if the breakout and price through the
resistance level. But if there is no breakout and price movements reverse
direction it will form a double top pattern. Here's an example of a bullish
pattern rectangle on the USD / JPY H4:
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| Trading With Rectangle Pattern |
Rectangle
bullish pattern can be identified by the formation of resistance level (1), the
level of support (2) and a breakout on the resistance level (3). When the
candlestick closing price breakout above the resistance level, entry buy can be
done on the next candle. Stop loss (SL) can be determined a few pips below the
support level, and the target profit (TP) is usually determined by the high
rectangle or by the distance between the levels of resistance and support. With
this method the risk / reward ratio is about 1: 1.
An
alternative method is after the breakout of the resistance level and turned
into support, we are waiting for the price to move back and test (retest) of
the support levels. If the price does not break the support level then we can
buy entry as in the example EUR / USD M15 following:
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| Trading With Rectangle Pattern |
To get a
more accurate entry momentum can use technical indicators such as MACD or
oscillator indicators (RSI, stochastics), also with due regard to price
formation on the candlestick its action. As in the above example bullish
engulfing formation formed when the price failed to break the support level,
which indicates bullish sentiment.
With this
method can be obtained risk reward ratio is quite big because we can put the
stop loss level (SL) in a few pips below the support level, while the target
profit (TP) is determined by the high rectangle or by the distance between the
levels of resistance and support as in the previous method , Shown in the above
example the risk / reward ratio greater than 1: 3.
Trading with
bearish pattern rectangle
The opposite
of the bullish patterns rectangle, if the price moves later changed its
downtrend and sideways (ranging) then it is likely to form a rectangle bearish
pattern, ie if the breakout and price broke through the support level. But if
there is no breakout and price movements reverse direction it will form a
double bottom pattern. Here's an example of a bullish pattern rectangle on AUD
/ USD M30:
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| Trading With Rectangle Pattern |
When the breakout
candlestick closing price is below the support level, a sell entry can be done
on a candle thereafter. Stop loss (SL) can be determined a few pips above the
resistance level and target profit (TP) can be determined by high rectangle or
by the distance between the levels of resistance and support. With this method
the risk / reward ratio is less than 1: 1.
An
alternative method is after the breakout and the level of support turned into
resistance, we are waiting for the price to move back and test the resistance
level. If the price does not penetrate the resistance level then we could sell
such entry in the index sample H1 Nasdaq100 following:
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| Trading With Rectangle Pattern |
Level stop
loss (SL) determined a few pips above the resistance level and target profit
(TP) is determined at the height of the rectangle or the distance between the
resistance and support levels as in the previous method, so this method can be
obtained risk reward ratio is greater. As in the above example the risk / reward
ratio of approximately 1: 2.
n.tradimo.com : Bullish rectangle, en.tradimo.com : Bearish rectangle, www.fxkeys.com : How to Use the Rectangles and Flags Chart Pattern in Forex Trading
