Glossary

Rectangle Chart Pattern
A rectangle pattern occurs when the price of a security stays within a bounded range, creating horizontal trend lines that show well-defined support and resistance levels. Rectangle patterns show market indecision and indicate that the supply and demand of a security is in a stalemate. Traders often watch for a breakout to occur either upwards or downwards. When price consolidates to a rectangle pattern during a downtrend, it is considered a bearish rectangle. A bullish rectangle is when the price consolidates during an upward trend.
How to trade using the rectangle chart pattern

To trade rectangle patterns, you can employ one of two strategies:

  1. Range trading: Identify the levels of support and resistance, then buy at support and sell at resistance
  2. Break-out trading: Wait for the price to break out either in an upward or downward trend and enter the trade in that direction

Range trading involves many consecutive, small trades over a short period of time. Break-out trading on the other hand involves waiting for the price to break through either the level of support and resistance and entering a trade in the direction of the new trend. Both of these strategies involve stop-loss and other specified order types to protect you if the price moves in an unexpected direction. The most crucial element of trading a rectangle pattern is to identify the bounded support and resistance levels so you can react quickly once a breakout occurs or know when to enter and exit trades if range trading. You can learn more about trading rectangle chart patterns in our trading academy.

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