The 3 Most Reliable Price Action Patterns (part two)

A recent study by Cody Hind (2020), tested 10 years of data and over 200,000 trading patterns, in order to evaluate their reliability. Hind included in the study only those price action patterns considered to be ‘complete’, which means they fully broke a support/resistance area or trendline.

Hind’s evidence showed that the Bullish Rectangle Pattern is the second most reliable pattern, with a success percentage of 78.23% and the Bearish Rectangle Pattern with a percentage of 79.51%.

The rectangle price pattern is a continuation pattern that follows a trending move, very similar to the channel pattern, except that the rectangle pattern does not have a slope against the preceding trend which gives it a higher chance of successful continuation.
The rectangle pattern is defined by a strong trending move followed by two or more nearly equal tops and bottoms that create two parallel horizontal trendlines (support and resistance). The only difference between the bullish and bearish variations is that the bullish rectangle pattern starts after a bullish trending move, and the bearish rectangle pattern starts after a bearish trending move.
These price patterns may be interpreted like failed double and triple tops/bottoms. Because the swing points following the double and triple highs or lows don’t break to confirm the patterns, those reversals are not confirmed. This is why it can be very dangerous for a trader to try to anticipate double and triple tops/bottoms, as often they don’t fully complete and price will resume the prior trend.
Hind considers a rectangle pattern ‘complete’ when price breaks the resistance line in a bullish rectangle, or when price breaks the support line in a bearish rectangle, and ‘successful’ when price extends beyond the breakout point by the same distance as the width of the rectangle pattern.
Despite the high success percentage hit by the rectangle patterns, there is a pattern which perform even better: the Head and Shoulders pattern.

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