Rectangles

The Rectangle chart pattern is a continuation pattern that forms as a trading range during a pause in the trend. The pattern is easily identifiable by two parallel trendlines—representing support and resistance—that the price action has been touching and bouncing off of, but has failed to break through. The rectangle pattern can occur in both an uptrend and a downtrend.

1. Bullish Rectangle: This forms during an uptrend and is a signal that the trend will continue. After a strong upward move, the price consolidates and moves sideways. This is typically seen as a period of rest before the price resumes the uptrend.

2. Bearish Rectangle: This forms during a downtrend and is a signal that the trend will continue. After a strong downward move, the price consolidates and moves sideways. This is typically seen as a period of rest before the price resumes the downtrend.

The pattern is confirmed when the price breaks out of the rectangle—in the direction of the prevailing trend. Traders often set price targets based on the height of the rectangle added/subtracted to/from the breakout point.

As with all chart patterns, it's important to consider the rectangle pattern within the larger market context and to use other technical analysis tools to confirm signals.