Rectangle Chart Patterns
A rectangle is a chart pattern formed when parallel support and resistance levels bound the price. A rectangle shows a period of consolidation or indecision between buyers and sellers as they take turns throwing punches, but neither has taken over. The price will “test” the support and resistance levels several times before eventually breaking out. From there, the price could trend in the direction of the breakout, whether it is to the upside or downside. We must wait until one of these levels breaks and go along for the ride!
A bearish rectangle is formed when the price consolidates during a downtrend.
This happens because sellers probably need to pause and catch their breath before taking the pair any lower.
Bearish rectangle after a downtrend
In this example, the price broke the bottom of the rectangle chart pattern and continued to shoot down.
If we had a short order just below the support level, we would have made a nice profit on this trade.
Here’s another example of a rectangle, this time a bullish rectangle chart pattern. If you answered, then you’re right! Check out that nice upside breakout right there! Notice how the price moved all the way up after breaking above the top of the rectangle pattern. We would’ve caught some pips on the trade if we had a long order on top of the resistance level! Just like in the bearish rectangle pattern example, once the pair breaks, it will usually make a move that’s AT LEAST the size of its previous range.