Using Rectangular Patterns For Trading Breakouts – In general, the breakout offers some potential risk/reward, allowing traders to keep stops relatively tight on potential profit targets. An exposed way of doing this is by trading the ‘rectangle’ pattern, which increases when the price collects between the represented support and resistance zones. Traders wait for some time during which the price consolidates before the pair makes the next big move.
What Is a Square Pattern?
The rectangle pattern characterizes a break in the trade where the price slides between the parallel support and resistance zones. The pattern usually describes a consolidation in the price before continuing in the original direction of the existing trend. The confirmation candle closes outside the upper or lower bonds indicating an end to the rectangle pattern and signals the direction of the breakout of the continuing trend.
Traders should always be aware of a potential reversal in the trend by analyzing the overall chart, which depicts a larger macro pattern. Rectangle patterns can be seen in an uptrend or downtrend. The image below underlines two scenarios depicting a bullish and bearish rectangle, respectively.
Rectangle bullish pattern: A continuation pattern occurs in an uptrend, where traders attempt to enter a long position once price breaks support and closes the inside of the ‘breakout zone.’
Rectangle bearish pattern: A continuation pattern occurs in a downtrend, in which traders try to enter a short position once the price breaks support and closes the inside of the ‘breakout zone.’
What do you know about Rectangle Patterns For Trading Breakouts?
The Advantage of Using a Square Pattern For Trade Breakouts
There are several reasons why the rectangle pattern is a popular choice among traders when it comes to breakout strategies:
- It is relative enough to limit the support and resistance lines inside the rectangle
- Can be applied to different markets
- The concept is simple for novice traders to understand – getting to know consolidation patterns in pre-existing patterns and trading existing breakouts
- Entry, stop and limit levels are easy to identify and apply to trades
- Used as a breakout strategy or range bond strategy
Ultimately, the breakout requires moving price through adequate support and resistance levels, and this rectangle pattern forms its boundary channel. This means they are in direct contact with the trading breakout opportunity.
Top Tips For Trade Breakout With A Square Graphic Pattern
Trading breakout forex with a rectangular pattern is quite obvious. The list below summarizes what traders should do when entering a trade:
- Identify existing trends
- Make sure there is no longer period or macro pattern there before doing it for rectangular pattern analysis
- Adequate support and resistance by joining highs and lows in a ‘rectangle’
- Wait for a breakout in the original direction of the trend with a closed candle below or above the support/resistance depending on the direction of the trend – enter the closed candle
- By measuring the height of the rectangle and designing the height above resistance and below support, traders can determine target price breakouts
So this review about using a rectangular pattern for Trading Breakouts, hopefully, this is useful.