Rectangle pattern, upon breakout, is likely to continue the trend. This graphical price pattern stands for existing trend confirmation. And it is called a bullish rectangle if the breakout takes place on the upside. The bullish rectangle pattern is considered one of the most common ones. It is a pattern of trend continuation which means that it generally comes in an uptrend by signaling that the uptrend will continue. The bullish version is usually formed in an uptrend and signals that the trend’s direction will prevail after its occurrence on the chart.
The formation of rectangle reflects a consolidation period. It is defined by two parallel trendlines which represent support and resistance levels respectively. The most recent lows and highs of the price are connected, through these levels holding a certain bunch of price fluctuations within.
The move of the currency is made between flat support and resistance levels. The price that climbs above the resistance line (plus the possibility if certain deviation is) is a buy signal as the level at which the asset has been continually sold is finally overcome. After an uptrend, the price stops to consolidate for a moment. After the break of the upper trend line a trader has an opportunity of buying. Stop loss can be put below the lower trend line and the profit target can be the height of the rectangle above the upper trend line.
The price, depending a bullish rectangle pattern formation, is believed to rise at least to its target level. It is calculated in the following way:
T = R + H
T is the target price;
R is the resistance level (pattern’s top);
H is the pattern’s height (distance between support and resistance).