A rectangle is a chart pattern displayed by the price that usually occurs after a strong trend.

    It shows a period of consolidation where neither the buyers nor the sellers gain control to push the price in any particular direction. While this period of indecision happens, the price ranges between support and resistance before breaking out.

    In the following illustration, a bullish rectangle has formed during an uptrend. As the price breaks through the resistance, it continues the uptrend by at least the height of the rectangle formation.


    bearish rectangle is formed in the same fashion after a downtrend. In the following chart, the price breaks through the support level, and then the downtrend is continued.


    Rectangles can be both continuation patterns and reversal patterns. It is prudent to wait for the breakout to occur before entering the market. The following illustration shows an example of where the price reversed after a rectangle pattern formed.


    Further reading

    Learn more about support and resistance levels: