The bearish rectangle chart pattern is used by many traders since it signals bearish continuation in the forex market. After a long bearish movement in the forex market, the price starts its ranging movement. This ranging movement of the price forms the rectangle pattern. Almost 80% of the time the price broke in the downward direction for the prevailing downtrend. The market seems to be ranging while trading the rectangle chart pattern is due to fact equal buying and selling pressure.
Let’s see an example of bearish rectangle chart pattern
Figure: Bearish rectangle pattern
In the above figure the price breakout the bearish rectangle pattern and continues to move in the direction of the downtrend. Price action trader waits for continuation candlestick pattern while trading this type of breakout. A black candle followed by a spinning top and another black candle is the clear indication of the downward continuation of the pattern.
Trade set up
Traders use different techniques while trading the bearish rectangle pattern. Some trader uses tight stop loss to enter into the trade without candlestick confirmation. But trading without price action confirmation will results in poor trade execution since the price noise will shake you out of the market. Trader put their stop loss just above the resistance of the rectangle and rides the bearish trend.
Professional traders trade the bearish rectangle in two ways. They sell the rectangle top resistance with tight stop loss. And once the support of the rectangle is broken trader enter into a new position (short) and trails the stop-loss to the breakeven point for the first trade. It’s imperative that trader should use higher time frame when trading with rectangle chart pattern. The use of higher time frame filter out the noise of the market and help the trader to pick the best possible selling spot.