# Bearish rectangle

The bearish rectangle is a continuation pattern that occurs when a price pauses during a strong downtrend and temporarily bounces between two parallel levels before the trend continues.

In this lesson, we will show you how to identify the bearish rectangle and use it as a possible selling opportunity.

## How to identify the bearish rectangle

See the price chart below for an example of what a bearish rectangle looks like:

number_1 Resistance line
number_2 Support line

As shown above, the price falls in a strong downtrend and then starts to consolidate between support and resistance levels.

It continues to move sideways, bouncing between these two parallel lines and forming a box-like shape that gives the pattern its name.

The price then breaks out through the lower support level and continues its downtrend.

Now try the following exercises to see if you can identify the bearish rectangle pattern:

Exercise 1: Identify the bearish rectangle Show exercise
Exercise 2: Identify the bearish rectangle Show exercise

## How to trade the bearish rectangle: method 1

We will now show you two methods of trading the bearish rectangle.

As soon as a candlestick has closed below the rectangle's lower parallel line (the support level), enter your trade with a short (sell) order.

See the chart below for an example of this:

number_1 Resistance line
number_2 Support line
number_3 Area where price has broken support number_2
es1 Sell order (short entry)

Place your stop loss just above the rectangle's upper parallel line (the resistance level).

See the chart below for an example of this:

number_1 Resistance line
number_2 Support line
number_3 Area where price has broken support number_2
es1 Sell order (short entry)
sl2 Stop loss

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Measure the height of the rectangle and then place your profit target the same distance underneath the rectangle's lower parallel line.

See the chart below for an example of this:

number_1 Resistance line
number_2 Support line
number_3 Area where price has broken support number_2
es1 Sell order (short entry)
sl2 Stop loss
tp3 Take profit

Now try the following exercise to practice placing your entry, stop loss and take profit according to method 1:

Exercise 1: Where would you place the entry, stop loss and take profit? Show exercise

## How to trade the bearish rectangle: method 2

We will now show you how to trade the bearish rectangle using a second method.

As with method 1, wait for a candlestick to close below the lower parallel line, breaking the rectangle's support.

Then, wait for the price to retest the lower line – this broken support level now turns into a resistance – and place your sell order.

See the chart below for an example of this:

number_1 Old resistance line
number_2 Support turned resistance
number_3 Price finds resistance
es1 Sell order (short entry)

Place your stop loss just above the rectangle's lower parallel line (the old support level that has now turned into a resistance)

See the chart below for an example of this:

number_1 Old resistance line
number_2 Support turned resistance
number_3 Price finds resistance
es1 Sell order (short entry)
sl2 Stop loss

As with method 1, measure the height of the rectangle and then place your profit target the same distance below the rectangle's lower parallel line.

See the chart below for an example of this:

number_1 Old resistance line
number_2 Support turned resistance
number_3 Price finds resistance
es1 Sell order (short entry)
sl2 Stop loss
tp3 Take profit

Now try the following exercise to practice placing your entry, stop loss and take profit according to method 2:

Exercise 1: Where would you place the entry, stop loss and take profit? Show exercise

## Summary

In this lesson you have learned that ...

• ... bearish rectangles are continuation patterns that occur when a price pauses temporarily during a downtrend – they offer you a selling opportunity.
• ... you enter your short trade after the rectangle's lower support level has been broken or, in the case of method 2, after it has been broken and then retested.
• ... you place your stop loss above the rectangle's upper resistance line or, in the case of method 2, above the lower parallel line once it has turned into a resistance.
• ... you place your profit target the same distance below the rectangle's original support level as the distance between the rectangle's two parallel lines.

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• Hi, Me again with the quiz.
The profit target of the last question in the next quiz is just like the previous quiz, it seems unrealistic. May I suggest a change to the TP levels of rectangles to reflect those of flags. Profit target to be calculated from the start of the trend rather than the distance between the support and the resistance (the height as you have called it) of the rectangle.
Or at least the height to be calculated from the point of entry rather than the last broken support or resistance. Because according to the second method (retracement entry) the TP is quite near.
• Hi Isin,
These examples are provided as guidance only. Our lessons do not claim to present the single 'right' way of trading rectangles, flags, triangles etc. You are more than welcome to combine the insights gained from other lessons to create a more robust trading method. And you are correct. Rectangles can be viewed as a special case of flag patterns and take profit may be set according to the size of the preceding trend.
Regards.
Peter
• Thank you for your answer, I should also mention that I find this is to be the best site, especially so because of its clear, concise and step by step methodic approach. Thank you for all this material and thank you for providing it for free.

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