Rectangle
neutral · bilateral pattern · also: range, trading range
A rectangle is a horizontal trading range bounded by approximately parallel support and resistance. Price oscillates between the two until a confirmed close outside the range establishes a directional breakout. Rectangles are common during accumulation/distribution before major moves.
Formation rules
- At least two touches on each side
- Range tight enough that midpoint is meaningful
- Volume rises on breakout candle
How to trade it
Two strategies: (1) range-trading the bounds with tight stops, (2) breakout trading on confirmed closes outside the range. The breakout strategy has higher edge in trending environments; range-trading dominates in low-volatility regimes.
Common pitfalls
- False breakouts are common
- Direction of the eventual breakout is not predictable from the rectangle alone
Statistical context
Bulkowski: approximately even upside/downside breakout rates without volume confirmation. With volume, the post-breakout follow-through improves substantially.
Related patterns
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