Learn to recognize and trade a rectangle pattern through interactive charts.
What is a rectangle pattern?
A rectangle pattern is a consolidation pattern in a trend, which could be either up or down. This is why it's advisable to wait for a breakout to determine the direction of the next significant move in prices.
Download our free chart patterns PDF for a guide to 20 classical chart patterns with over 100 interactive charts, also on TradingView.
A rectangle usually develops over a 3-month period, although some can take longer. The longer it takes for the pattern to form, the bigger the move you can expect in either direction.
A rectangle consists of two parallel lines that define a trading range.
- This pattern is a consolidation in a trend, which could be either up or down.
- The parallel trendlines must run through at least 2 lows and at least 2 highs. The more touchpoints, the stronger the pattern.
- These highs and lows should alternate in a wave-like fashion, and be relatively evenly distanced from one another.
Unlike triangles, flags or pennants, there is no expectation that volumes decline as the pattern forms. As always, look for a rise in volumes upon a breakout, in order to validate the pattern and the likely future price trend.
Rectangle pattern trading tips
A breakout occurs when the price either breaks through resistance, or falls through support. The breakout should occur on higher volumes. Some traders wait for a successful re-test of that line before opening a position.
In the event of a rise in price above the resistance line, this means waiting for resistance to become support. The opposite holds true in the event of a fall in price below support.
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I'm Stéphane, a trader and an entrepreneur. My mission with TrustedBrokers is to help you find the right broker for you, whether you're a beginner or a pro. I've personally used and tested the brokers on our service, opening and funding real-money accounts, contacting customer service and placing trades. I started my career in investment banking in London.