How to Use Rectangle Chart Patterns to Trade Breakouts
The Rectangle Pattern
The rectangle pattern is a traditional technical analysis formation characterised by horizontal lines that highlight significant support and resistance levels.
This is known as range-bound activity where market is on a balance state and usually awaits further information prior to initiating a breakout.
Traders can effectively engage with this pattern by executing buy orders at support and sell orders at resistance.
Alternatively, they can opt to wait for a breakout from the formation and leverage the measuring principle for strategic trading.
The Bullish Rectangle Pattern
The bullish rectangle candlestick pattern emerges within an uptrend when price movements briefly halt before resuming their upward trajectory.
This pattern signifies a temporary equilibrium as prices move sideways.
A breakout above the upper resistance level validates the pattern, triggering a buy signal.
Key Takeaways
- The rectangle pattern signifies a lack of trend as the price fluctuates between horizontal support and resistance levels.
- Traders have different approaches to trading rectangles
- Some choose to trade within the rectangle, buying near the bottom and selling or shorting near the top.
- Others prefer to wait for breakouts, which occur when the price moves out of the rectangle.
- The rectangle pattern concludes with a breakout, marking the end of the price's sideways movement between support and resistance levels
