July 18, 2024

How to trade the rectangle chart pattern

Everyone wants to catch the large market movements of the market. Rookie traders often place trades prior to the high impact news release with a hope to make a huge profit within a short period of time. Such an aggressive trading strategy usually results in a heavy loss. On the other hand, the pro traders in Hong Kong use the major chart patterns in Forex market to catch the large market movements. Understanding the major chart patterns is fairly easy but things become difficult when you trade the real market. Though there are many kinds of chart pattern, we are going to discuss the rectangle chart pattern trading strategy.

Understanding the rectangle chart pattern

The rectangle chart pattern is represented by a rectangular shape in the trading chart. The price of a certain asset trades in a confined zone for a long period of time which results in the formations of such patterns. The experienced traders often consider this pattern as an end result of a range bound market. The upper range acts as a critical resistance level and the lower range acts as strong support. The pro traders execute the trade when the market breaks this confined region of the rectangle pattern.

Identifying the breakout

The new traders don’t really know the proper way to spot a breakout. Most of the time they end up trading the false breakout. The pro traders use a simple concept to avoid such complexity. Unless they have daily closed the price below or above the support or resistance level of the rectangle chart pattern, they never execute the trade. To do so, you must have access to the best Forex trading platform. You need to understand the fact, trading is all about precision. You can’t find quality trades or ride the long term market trend with the faulty trading platform.

Trade with market retracement

Conservative traders prefer to trade the market with retracement. After the breakout of the chart pattern, they wait for a minor pullback in the price. Though such type of trading strategy is extremely safe, you will often miss the trade. At times the breakout of the chart pattern is so powerful that the market hardly retraces. So this is where the aggressive breakout traders make a profit. Being a new trader in the Fore market, it’s better to trade the market with minor retracement since it will greatly reduce the risk factors in trading.

Setting up the stop loss and take profit level

Setting up the take profit level is fairly easy in rectangle chart pattern trading strategy. Most of the time the market exhibit a strong movement equal to the height of the rectangle chart pattern. As a novice trader, make sure you trade the daily time frame or else you will not get a decent trade setup in rectangle chart pattern trading strategy.

When it comes to stopping loss, the expert prefers to use price action confirmation signal. Unless you use the price action confirmation signal you will never get high-risk reward trade setups. Most of the trades will generate a 1:1 risk reward ratio. So, it’s imperative that you learn the price action trading strategy to trade the major chart patterns in Forex market.

Impact of major news

Most of the major breakout occurs due to the release of high impact news. Since the retail traders don’t have any clear knowledge about fundamental sections of the market, they often lose a big portion of their investment. If you spot a breakout in the chart pattern prior to the release of high impact news consider it as a false breakout. Unless you analyze the fundamental data, you will never realize the strength of the market breakout. So, work hard to learn more about the fundamental factors of the market. Always trade the market with low-risk exposure.