How to Use the Rectangle Pattern Trading Strategy to Profitably Trade Breakouts

Do you want to know more about chart patterns and the rectangle pattern trading strategy? Watching this video you will learn what how to use the Rectangle Pattern Trading Strategy to Profitably Trade Breakouts.

The Rectangle Pattern Trading Strategy Explained

One of the most common patterns that you will see on a training chart is the rectangle. The rectangle is essentially a simple consolidation pattern where you have obvious support and resistance. The markets just grind back and forth before making a decision. Because of this obvious pattern, you have the rest of the market noticing these levels as well. That’s the beauty of this strategy: it’s so obvious that other traders are waiting for the same thing.

On the attached AUD/NZD daily chart, you can see that the market had found significant resistance at the 1.0550 level, while having significant support at the 1.0375 handle underneath. Traders simply had to wait for a daily close outside of that rectangle to start going long of the market. Tradition dictates that a traitor will put their stop loss half way into the rectangle that was just broken out of, and as you can see your trade would have been protected. The target is quite often the same height as the rectangle, and since you have a stop loss with only half the distance, you have a build in 2 to 1 ratio.

The most important thing about this strategy is that rectangles appear so often. The more obvious and the longer that they run, the better these setups tend to be. Higher time frames of course are a little bit more reliable, but even on the short-term charts you see these patterns repeated time and time again.