Bullish rectangle is one type of continuation pattern that occurs on the chart. This time we will discuss the characteristics, requirements, examples, and how to trade from bullish rectangle. However, you can take a moment to read other articles such as How to Read Forex Candlesticks to Make a Profit, Complete!.

What is Bullish Rectangle

A bullish rectangle is a continuation chart pattern that occurs during an uptrend when price pauses before moving up. It is a chart formation that develops when price is moving sideways, and there is a temporary balance before the next price move. Once the price breaks above the upper resistance level, the pattern is valid, and a buy signal is given.
 
Generally, the rectangle pattern is part of the classic chart pattern group and indicates a temporary period of indecision between buyers and sellers. It is a very common and powerful chart pattern that involves breakout trading techniques.
 
The opposite version of the bullish rectangle pattern is the bearish rectangle pattern with the same formation and set of rules and occurs during a bearish trending market. During a strong uptrend, price pauses and forms a continuation rectangle pattern. There is a temporary bounce of price between two parallel levels before the trend continues. There are two types of rectangle patterns. Bullish and bearish. In this lesson, we will discuss the bullish rectangle. Buying opportunities: The bullish rectangle pattern can be used for possible buying opportunities.

Characteristics of the Bullish Rectangle Pattern

This is probably the most recognizable chart pattern, and can be traded on any time frame, although its duration should not exceed 30 price bars. A rectangle is drawn using two parallel horizontal lines that extend as price continues to move sideways. A breakout occurs when the support or resistance line is broken and the price bar closes outside the pattern.
What makes the rectangle stand out from the other continuation patterns we’ve discussed is how wide the range remains for the duration of the setup. That’s why volume is so important. In a bullish rectangle setup, you want to see increasing volume on the up move and decreasing volume on the down move. This confirms that the bulls are in control while price consolidates, and more buyers are expected to step in above the resistance line.
 
The opposite is true for a bearish setup. Volume should increase on the down move and decrease on the up move to show the bears are in charge of the pattern. Bullish rectangles are easier to identify than some other patterns like pennants. Take a look at the price chart below for an example of what a bullish rectangle looks like:
  1. Resistance line
  2. Support line
As shown above, price rose in a strong uptrend and then began to consolidate between the temporary support and resistance levels. It continued to move sideways, bouncing between these two parallel lines and forming a box-like shape that gives the pattern its name. Price then broke above the upper resistance level and resumed its uptrend.

Requirements for a Bullish Rectangle

A continuation pattern that occurs in an uptrend, where traders look to enter long positions after price breaks through support and closes within the 'breakout zone'. Bullish Rectangle: Characteristics, Terms, Examples, and Trading Strategies.

Bullish Rectangle Example

Another feature that makes this pattern unique is the way it is traded. The setup appeals to both aggressive and conservative traders because the risk parameters are clearly defined no matter how you choose to trade it. The profit target after the breakout is a measured move that is equal in distance to the rectangle’s high and low points. More aggressive traders will execute a series of “range trades,” buying the support line and selling the resistance line, with stops hovering just beyond the breakout area. Using multiple contracts to trade the range is a great way to maximize profits when a breakout is anticipated.



For example, if the volume pattern lines up to signal a bullish breakout, 2 contracts could be purchased at the support line. You could then exit half the position for profit at the upper resistance line and hold the remaining contract through the breakout. You could also adjust your stop to exit the remaining contract at the 50% retracement line of the rectangle, or keep it just below the support line. More conservative traders would wait for confirmation of the breakout before entering a position, and then exit when the measured move is complete.

Bullish Rectangle Trading Strategy

Here is a strategy for trading the bullish rectangle itself. The strategy is:

How to trade the bullish rectangle: method 1

We will now show you two methods for trading the bullish rectangle pattern.
 
Enter your trade

As soon as the candle closes above the upper parallel line of the rectangle (resistance level), enter your trade with a buy order. See the chart below for an example of this:
 

  1. Resistance line
  2. Support line
  3. Area where price has broken through resistance
  4. Buy order (long entry)
  5. Place your stop loss
  6. Place your stop loss just below the lower parallel line of the rectangle (support level).
  7. See the chart below for an example of this:

  1. Resistance line
  2. Support line
  3. Area where price has broken resistance 1
  1. Buy order (long entry)
  2. Stop loss

Place your profit target

Measure the height of the rectangle and then place your profit target the same distance above the top of the top parallel line. See the chart below for an example of this:

  1. Resistance line
  2. Support line
  3. Area where price has broken resistance 1
  1. Buy order (long entry)
  2. Stop Loss
  3. Take advantage

How to trade bullish rectangle: method 2

Here is the second method to trade the bullish rectangle.

Enter your trade

Like method 1, wait for the candlestick to close above the upper parallel line, breaking the rectangle resistance. Then, wait for price to retest the upper line – this broken resistance level is now turned into support – and place your buy order. See the chart below for an example of this:

  1. Resistance turns to support
  2. Support
  1. Buy order (long entry)

Place your stop loss

Place your stop loss just below the upper parallel line of the rectangle (the old resistance level that has now turned into support) See the chart below for an example of this:

  1. Resistance turns to support
  2. Support
  1. Buy order (long entry)
  1. Stop loss

Place your profit target

Like method 1, measure the height of the rectangle and then place your profit target the same distance above the top of its upper parallel line. See the chart below for an example of this:



  1. Resistance turns to support
  2. Support
  1. Buy order (long entry)
  1. Stop loss
  2. Take advantage

Advantages of Using Bullish Rectangle

There are several reasons why the rectangle pattern is a popular choice among traders when it comes to breakout strategies:
  • It is relatively simple to demarcate support and resistance lines within a rectangle.
  • Can be implemented in different markets
  • The concept is easy for novice traders to understand – recognize consolidation patterns within a pre-existing trend, then trade the breakout.
  • Entry, stop and limit levels are easy to recognize and apply in trading
  • Used as a breakout strategy or range bound strategy
Ultimately, breakouts require price to move through an established support or resistance level, and rectangle patterns form these barrier channels. This means they are directly related to breakout trading opportunities.

After learning about the bullish rectangle, then you can apply the forex trading method from the bullish rectangle itself. In addition, make sure to register and get a 30% welcome bonus to maximize fund resilience while trading!