An invented price line: a price moving back and forth between the same high and the same low, and then a rise out of the top, outlined by a flat line across the highs, a flat line under the lows and the height between them.
An invented chart, drawn to show the shape of a rectangle. Not market data.
Also searched astrading range · rectangle chart pattern · consolidation range · box pattern · sideways market
How to recognise a rectangle
- At least two highs at about one price and two lows at about another.
- The two lines are roughly horizontal and roughly parallel.
- The price crosses the middle of the range repeatedly, without settling.
What it is taken to mean
It is read as balance. Buyers appear at the lower line, sellers at the upper one, and neither side is winning. Textbooks class it as a continuation when the price leaves in the direction it arrived, and a reversal when it leaves the other way. Which one it is can be said only afterwards.
That is a reading, and no more. A pattern is a description of what a price did, not a forecast of what it will do. Textbooks file this one under “either way”, which is a habit of naming and not a rule the market keeps.
How it is conventionally measured
The textbook measure is the height of the rectangle, set off from whichever line the price closed beyond. It is a convention for describing the shape, not a prediction.
What traders check
- How many times each line has been reached.
- Whether the price has closed outside the range or only pushed a wick through it.
- How wide the range is against the cost of trading inside it.
Where people go wrong
- Deciding in advance which way it will break.
- Treating the lines as exact. A range has fuzzy edges, and prices overshoot them.
- Mistaking the first move outside the range for the break. False breaks from ranges are common.
On a real chart
Textbook shapes are rare. A real chart is ambiguous: the peaks are uneven, the lines can be drawn two or three ways, and the same candles are a rectangle to one reader and something else to another. Most shapes are also recognised only once they are finished, which is after the move they are said to announce has begun.
The picture on this page is invented. It was drawn by hand to show the shape as plainly as possible, with every awkward detail left out. It is not market data and it records nothing that happened.
Questions people ask
- Is a rectangle a continuation or a reversal pattern?
- Either. It depends on which side the price leaves, and that is known only once it has happened.
- What is the difference between a rectangle and a flag?
- A flag is short and follows a sharp move, and its lines usually slope against that move. A rectangle is longer, its lines are flat, and it need not follow anything sharp.
- Does a rectangle predict a breakout?
- No. It describes what a price did while the shape formed. Published studies of chart patterns disagree about whether they tell anything about the next move, and the tidy examples in textbooks were chosen afterwards, when the outcome was known. It is one observation to weigh with others.
The words on this page
An explanation for study. It is not advice, a recommendation or a forecast, and a pattern described here says nothing certain about what a price will do next.