Technical Glossary / Chart Patterns
Rectangle Pattern
A pause between horizontal support and horizontal resistance.
Teaching sketch. It shows the shape, not a live quote and not a trade signal.
Definition
A rectangle is a trading range after a move, or a range that is the whole story. Highs stall at one area and lows hold at another. It is continuation when it breaks in the direction of the prior trend, and reversal when it breaks the other way. The range itself is neutral.
How to identify it
At least two similar highs and two similar lows, roughly parallel and horizontal. A sloping pair of lines is a channel or a wedge, not a rectangle.
Bullish reading
A close above the range high is the upside break. Risk under the last swing inside the box, or under the box if you want the stricter stop.
Bearish reading
A close under the range low is the downside break. Rectangles in uptrends do break down. The prior trend is a bias, not a rule.
How traders use it
Until the break, the edges are for range trades only if you accept being run over by the eventual break. Many technicians simply wait for the close outside.
Common mistakes
Drawing a rectangle around a slope. If the highs are falling, you have a descending structure.
Limitations
Ranges fake out. A one-tick break is not a close. Decide in advance which close counts.
This note explains the term. A sketch shows the shape of the idea. Neither is a recommendation, a signal, or a comment on any security. Indicator settings and exchange conventions differ. Check the live chart and the contract specification before you use a number.