DEFINITION of 'Rectangle'

A pattern formed on a chart where the price of a security is trading within a bounded range in which the levels of resistance and support are parallel to each other, resembling the shape of a rectangle. This pattern signals that the price movement, which has stalled during the pattern, will trend in the direction of the price breakout of the bounded range.

BREAKING DOWN 'Rectangle'

The bounded range, or rectangle, is a period of consolidation in which market participants are generally indecisive. The formation of this pattern will see the price of the security test the levels of support and resistance several times before a breakout. Once the security breaks out of the range, in either direction, it is considered to be trending in the direction of the breakout.

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RELATED FAQS
  1. How are rectangle patterns interpreted by analysts and traders?

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  3. How effective is creating trade entries after spotting a rectangle pattern?

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