Rectangle Patterns
Overview
Rectangle patterns form when price trades sideways between two parallel horizontal lines — a clearly defined support and resistance. Rectangles represent a period of equilibrium where buyers and sellers are evenly matched. The pattern resolves when price breaks decisively through one of the boundaries, often continuing in the direction of the prior trend.
Key Concepts
Horizontal support and resistance forming parallel boundaries. At least two touches of each boundary for validation. Volume tends to decrease during formation. Continuation bias: breakout typically favours the prior trend direction. Can also function as reversal patterns in specific contexts.
Entry Signals
Enter on a breakout above resistance (bullish) or below support (bearish) with expanding volume. Wait for a retest of the broken boundary as new support or resistance for a lower-risk entry. Trade bounces within the rectangle from support to resistance and vice versa during formation. Confirm breakout with momentum indicators crossing their signal lines.
Exit Signals
Measured-move target equals the height of the rectangle projected from the breakout point. Place stops on the opposite side of the rectangle boundary. Trail stops using the broken support or resistance level. Exit range-bound trades near the opposite boundary with tight targets.
Best Timeframes
1H, 4H, Daily
Pro Tips
Rectangles that form after strong trends have a higher probability of resolving as continuation patterns. Trading within the rectangle can be profitable but requires tight risk management — use the boundary as invalidation. The longer the rectangle forms, the more powerful the eventual breakout tends to be.
More Topics in This Category
Broadening & Expanding Patterns
Broadening patterns, also called megaphone or expanding patterns, form when price creates progressively higher highs and lower lows, diverging rather than converging. These patterns reflect increasing volatility and disagreement between buyers and sellers, often appearing during periods of uncertainty or at major market turning points. Broadening patterns are among the most challenging formations to trade because they lack the contracting structure of typical chart patterns.
Pennants
Pennants are short-term continuation patterns that form after a strong directional move. They resemble small symmetrical triangles, with converging trendlines creating a compact consolidation zone. Unlike flags, which have parallel channels, pennants converge to a point. The breakout typically occurs in the same direction as the preceding move, with the measured target based on the flagpole.
Double Top & Double Bottom
Double tops and double bottoms are two-touch reversal patterns that form when price tests the same level twice and fails to break through. A double top signals bearish reversal after an uptrend, while a double bottom signals bullish reversal after a downtrend. The pattern is confirmed when price breaks the support or resistance level formed between the two peaks or troughs.
Cup & Handle
The cup and handle is a bullish continuation pattern resembling a teacup when viewed from the side. The cup forms as a rounded bottom with the left and right rims at approximately the same level, followed by a small downward-drifting consolidation (the handle). A breakout above the handle's resistance triggers the measured move, calculated from the bottom of the cup to the rim.