Bullish & Bearish Rectangle Patterns
Bullish and bearish rectangle patterns produce an approximate 78% win rate and are considered continuation of price patterns.
The rectangle pattern is defined by a strong trending move followed by two or more nearly equal tops and bottoms where price stays within two parallel trend lines that are horizontal.
Bullish Rectangle Pattern
The bullish rectangle pattern begins after a bullish trending move and is considered successful when price extends beyond the breakout point by the same distance as the width of the parallel lines.
Bearish Rectangle Pattern
The bearish rectangle pattern begins after a bearish trending move and is considered successful when price extends beyond the breakout point by the same distance as the width of the parallel lines.
When you recognize a bullish or bearish rectangle pattern, you can either A enter at market price once the breakout occurs or B set a pending order.
The pending order you would want to set would be just above the resistance for a bullish rectangle pattern or just below the support for a bearish rectangle pattern.
In the example below, you see a bullish rectangle. The second trend line is the resistance and the pending order would be set just above for a long position.
Trail Stopping & Risk To Reward
After you have decided whether you will be entering at market price or setting pending orders, you must have a trading plan in place for take profit levels and solid risk management.
In the example to the right you see a bullish rectangle pattern. The second line represents TP (take profit) level 1. You would set multiple TP orders with risk to reward of 1:1, 2:1, 3:1 and a 4th position of 3:1 with trail stop.
In my next lesson, I will be covering Head & Shoulders and Inverted Head & Shoulders Patterns
See you then!
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