Rectangle
A pattern formed when price moves back and forth between two flat levels for a while. Sellers stop price at the upper level, buyers stop it at the lower level, and neither side takes control. It is most often read as a continuation pattern because it tends to break in the direction of the prior trend, but it can break either way. The break decides the direction.
How it forms
- Prior move. The pattern usually appears as a pause after a clear rise or fall. The prior trend gives context for which way a break is more often expected.
- Flat upper boundary. Price peaks at roughly the same level at least twice and turns back. The peaks sit within about 1–2% of each other. The line through them is horizontal.
- Flat lower boundary. Over the same period, price makes at least two lows at roughly the same level and turns up. The lows also sit within about 1–2% of each other and form a horizontal line.
- Moving between the boundaries. The touches alternate: price travels from one boundary to the other. At least four touches in total (two on each boundary) are needed; more make the pattern clearer. Unlike a triangle, the range does not narrow. Volume often falls during this phase.
- Completion. The pattern is complete when price closes outside one of the boundaries, and that close sets the direction. A candle whose wick crosses a boundary but closes back inside is not a breakout.
The thresholds here are approximate values commonly used in textbooks, not strict rules.
What it suggests
The upper boundary shows sellers defending the same level again and again; the lower one shows buyers doing the same. Price has found a balance between the two levels. Within a trend, this can point to a rest or a period of accumulation.
The pattern does not give a direction on its own. Breaks in the direction of the prior trend are more common, but breaks the other way are also frequent. In that case the rectangle is read more like a reversal pattern. So drawing conclusions about direction before the break is not sound.
When it strengthens, when it weakens
Strengthens
- A clear trend before the pattern
- The boundaries lining up with zones on the map
- More than two touches on each boundary
- Volume falling during the pattern and rising at the break
- The break coming with a close fully outside the boundary zone
Weakens
- Peaks or lows that are not at the same level
- A very narrow range, with no clear moves between the boundaries
- The break coming on low volume
- A strong zone close by in the direction of the break
- False breakouts, where a wick crosses a boundary but the close stays inside
The MarketLevelMap view
How it relates to zones
A rectangle is the pattern that lines up most directly with support and resistance zones. Its upper and lower boundaries are often two zones on the map themselves:
- A boundary is a band, not a line. The touches do not land on one price but in an area about 1–2% wide. A single line forces a choice between wicks and closes. A MarketLevelMap zone shows the whole area with its width, so every touch inside it is read as part of the same defence.
- A break is a close beyond the far edge of the zone. If price pushes into the upper zone and closes there, that is a test of the zone, not yet a break. Many moves that look like a break against a line are still inside the range when read against the zone.
- The middle of the range is the gap between two zones. Reactions there carry less meaning than reactions at the boundaries.
- The first zone in the direction of the break is a more realistic reference than the measured move for where price may react again.
After the break, price sometimes returns to retest the broken boundary. After an upward break, the old resistance zone may now act as support; after a downward break, the old support zone may now act as resistance. If price holds inside the zone on the retest and does not close on its far side, the break is considered more solid.
A rectangle sometimes forms inside a single wide zone on a higher timeframe. A break on the lower timeframe may then be a move that stays within the larger zone. Looking at which zone has broken says more than looking at which line has broken.
When it completes
Close outside one of the boundaries.
When it is invalidated
Before completion: If the peaks or lows stop being flat and take on a clear slope, price is no longer in a rectangle. The pattern is then read again as a triangle, channel or wedge.
After completion: Even after a close in the direction of the break, if price returns into the range and closes beyond the opposite boundary, the first break is considered invalid. False breakouts like this sometimes lead to sharp moves the other way.
Often confused with
- Ascending TriangleThe upper line is flat, but the lows rise and the range narrows to the right.
- FlagA sharp pole comes first, and the channel is short and slopes against the move.
- Triple TopAfter an uptrend, the top is tested three times and the range breaks downwards. The pattern is then read as a reversal.
For general information only. Not investment advice.Last updated: