Rectangle

What it is

A rectangle is a sideways range. Price bounces between a flat resistance above and a flat support below, touching each at least twice. The pattern completes when price closes outside the range.

It is usually a continuation pattern: a pause inside a trend. A bullish rectangle forms in an uptrend and breaks up; a bearish one forms in a downtrend and breaks down. The shape is the same.

Why it forms

After a strong move, buyers and sellers reach a temporary balance. Sellers are active at the top of the range, buyers at the bottom, and neither side is willing to push further. Other traders notice the range and trade it too, which reinforces both edges.

The balance ends when one side runs out of orders. If the sellers at resistance are used up, a close above it shows buyers are back in control. Traders who were selling the top of the range are now on the wrong side, and their exits add to the move.

How to identify it

• A trend before the range. Without one, you have a sideways market, not a continuation pattern.
• A flat ceiling and a flat floor, each touched at least twice.
• Highs and lows that stay level. If the lows are rising toward a flat top, it is an ascending triangle instead.
• Volume that fades while the range holds.

What confirms it

A candle close outside the range, ideally on higher volume. A retest of the broken edge that holds — old resistance now acting as support, or the reverse — is further confirmation.

What invalidates it

• Price breaks out, then closes back inside the range. This is a failed breakout, often called a fakeout.
• After a failed breakout, a close through the opposite side of the range. The pattern has resolved the other way.

Common mistakes

• Treating a wick as a breakout. Ranges produce many spikes through their edges that close back inside. Wait for the close.
• Assuming the direction. Rectangles often continue the prior trend, but not always. The break decides.
• Drawing the range too loosely. If the highs or lows clearly slope, you are looking at a different pattern.
• Treating the measured move as a price target. It is a reference for scale, not a forecast.