Rectangle + Supertrend Swing Trading Strategy

A price action swing trading strategy (with example) →

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Upsurge Club
February 07, 2024

Hey there 👋🏼

Today in less than 5 minutes:

1) How to predict breakouts
2) A price action breakout trading strategy + example
3) A stock that has started breaking out

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Predict breakouts with the rectangle pattern

Imagine you're watching a race, and suddenly one of the runners bursts ahead of the pack, leaving everyone else behind. That's pretty much what a breakout is in trading. It's when the price of a stock suddenly moves strongly in one direction, breaking out of its usual range.

The earlier you catch a breakout, the more profits you make.

And if you’re able to identify that ‘usual range’ of a stock, you’ll be able to catch its breakout early. A rectangle pattern will help you identify that ‘usual range’.

A rectangle is a chart pattern that is formed when the price of a stock stays within an upper and lower limit. The price movement should generate at least 2 swing lows near a common level, and 2 swing highs near similar levels as well.

You can learn to use a range of candlesticks, chart patterns, and indicators in Ms. Jyoti Budhia’s comprehensive Technical Analysis Course.

Reflecting consolidation and indecision, a rectangle pattern can also be called an elaborate version of a doji.

A doji formed on a 1-day chart of RELIANCE on 29/11/2023 (highlighted in blue):

RELIANCE (1D)

The 15-minute chart of the same day (29/11/2023), forming a rectangle pattern:

RELIANCE (15M)

Let’s now learn how to trade breakouts using the rectangle pattern ↓

Rectangle + Supertrend Swing Trading Strategy

The idea of this strategy is to:
> Use the Supertrend indicator to find stocks in consolidation
> Plot a rectangle around the consolidation and use it to catch a breakout at an opportune time

Historically, the Supertrend is found to be flat either when stocks are consolidating or when the volatility is expanding.

We will deploy this strategy on a daily timeframe, which is why it can be called a swing trading strategy.

Entry / Long Trade

1) Scan for stocks where the Supertrend indicator has been flat for the past 10 or more trading sessions. The Supertrend line should be bullish, i.e. green.

2) Draw a rectangle around that range - a consolidation should be visible.

3) Wait for a bullish candle to emerge and breach the upper limit of the rectangle. You can enter at that candle itself, or wait for a retest to confirm the newly formed support.

Exit / Short Trade

1) Scan for stocks where the Supertrend indicator has been flat for the past 10 or more trading sessions. The Supertrend line should be bearish, i.e. red.

2) Draw a rectangle around that range - a consolidation should be visible.

3) Wait for a bearish candle to emerge and breach the lower limit of the rectangle. You can exit at that candle itself, or wait for a retest to confirm the newly formed resistance.

Example - Long Trade in TATAINVEST

The following is the daily chart of TATAINVEST. By observing the rectangles and behaviour of the Supertrend, one can see how TATAINVEST gave multiple trade opportunities using this strategy:

TATAINVEST (1D)

We tried looking for such stocks ourselves - where the price has been consolidating within a rectangular range. Wouldn’t it be great if we found such stocks where, along with a rectangular consolidation, a fresh breakout can be spotted (as of 7th Feb 2024)?

Keep reading to find out what we got!

Learn to use candlesticks, chart patterns, and indicators in Ms. Jyoti Budhia’s comprehensive Technical Analysis Course. You can use ‘STOCK10‘ for a 10% discount at checkout & get the course for just ₹674.

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Ask us anything!

Have any doubts about the swing trading strategy? Or want to learn something else? Hit us up!

This stock has started breaking out!

Scanning through ‘Supertrend flat’ stocks charts of NSE500, we found the following stock breaking out of an observable rectangle pattern with above average volumes (as of 7th Feb 2024):

GPIL (Daily Timeframe)

Note that none of the above stocks are intended as recommendations. Do your own due diligence before trading/investing.

You must have noticed that despite a rectangle formation, the angulation of the Supertrend indicator itself acts as a good signal of potential future movement.

Learn to use the Supertrend indicator for profitable strategies in different time frames in Mr. Khagesh Agarwal’s Supertrend Indicator Strategy Course, a full-time trader having 13+ years of experience. Use ‘STOCK10’ to get the course for just ₹359.

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Keep profiting,
Upsurge.club

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