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Patrick Stockdale
Written by Patrick Stockdale | May 14, 2022

What Is A Rectangle Chart Pattern?

In technical analysis, a rectangle chart pattern is a pattern that forms on the price charts of a financial market when the price moves within a sideways range with a clear horizontal level of support and resistance.

The rectangle pattern is shaped exactly like a rectangle with the prices bouncing off and reversing from the rectangle pattern support and resistance level multiple times.

The pattern signals that there is neither a bullish or bearish trend. Instead, it signals that the price is moving sideways and consolidating.

Rectangle Pattern Components

Rectangle pattern components

In order to identify a rectangle pattern on the price chart of a financial market, there will need to be two components visible.

The two components of a rectangle chart pattern are:

  • A horizontal resistance level: This is a horizontal resistance level that connects all the swing highs in the price together with a horizontal line.
  • A horizontal support level: This is a horizontal support level that connects all the swing lows in the price together with a horizontal line.

Rectangle Chart Pattern Examples

Below are visual examples of the rectangle chart pattern.

Example Of A Rectangle Pattern In The Stock Market

Rectangle chart pattern stock market

On the daily price chart of Apple stock, a rectangle chart pattern formed. The price of Apple moved within the rectangle pattern range for over two months before the price breaks down to the downside.

Example Of A Rectangle Pattern In The Forex Market

rectangle pattern forex market

On the daily price chart of the EUR/USD currency pair, a rectangle pattern formed. The price of the currency pair traded within the range of the rectangle with a clearly established horizontal resistance level and support level.

Example Of A Rectangle Pattern On A Shorter Timeframe Price Chart

Rectangle pattern short timeframe chart

On the hourly price chart of Wayfair stock, a rectangle pattern formed. The price of Wayfair stock traded within the range of the rectangle pattern for a few days before breaking down below the support level.

This is an example of a rectangle pattern working on shorter timeframe charts too.

Example Of A Rectangle Pattern On A Higher Timeframe Price Chart

Rectangle pattern on higher timeframe chart

On the weekly price chart of Amazon stock, a rectangle pattern formed.

The price of Amazon stock moved within the range of the rectangle pattern for many months before breaking down below the rectangle pattern support level.

How To Find Rectangle Patterns

The methods for finding a rectangle pattern in the market are:

  • Use a rectangle pattern scanner: Use a rectangle chart pattern scanner software to scan and find rectangle patterns in the markets.
  • Browse manually: A trader can manually browse through the price charts of the markets to find rectangle patterns.
  • Follow a chart pattern newsletter: Traders can follow newsletters from chart pattern experts to help find these rectangle patterns.

How To Use A Rectangle Chart Pattern

There are two ways of using a rectangle chart pattern in the markets. The two ways of using a rectangle chart pattern are:

  • Rangebound trading: Traders can short the market when the price gets to the horizontal resistance level of the rectangle pattern and buy the market when the price gets to the horizontal support level of the pattern.
  • Breakout trading: Traders can buy the market when the price breaks above the resistance level of the rectangle pattern and short the market when the price breaks down below the support level of the pattern.

Rectangle Pattern Benefits

The benefits of the rectangle pattern are:

  • Provides logic to the market price action: A rectangle pattern can help provide logic and understanding of when a market is trading within a range and not trending.
  • Provides low-risk entry points: A rectangle pattern can help a trader to find low-risk entry points when trading a market.
  • Helps traders avoid volatile and choppy markets: Some traders prefer to avoid choppy and volatile markets with no clear trend. A rectangle pattern can help keep a trader out of a market as the pattern shows there is no clear trend.
  • Works on any timeframe: A rectangle pattern can form and be traded on any timeframe so scalpers, day traders and swing traders can use the pattern.
  • It is easy to spot: A rectangle pattern is one of the easiest chart patterns to spot on a price chart as it's simply a rectangle box.

Rectangle Pattern Limitations

The limitations of the rectangle pattern are:

  • It can create many false trading signals: A rectangle pattern can create many false signals especially if trading breakouts of the rectangle pattern.
  • It can be hard to trade: A rectangle pattern can be hard to trade as the price can move slightly above and below the resistance and support levels which can confuse newer traders.

Rectangle Pattern Formation Duration

The length of time a rectangle pattern will take to form on a price chart will depend on the timeframe of the price chart used.

Example length of times for a rectangle pattern to form include:

  • 20 minutes minimum for a rectangle pattern to form on a 1-minute price chart.
  • 20 hours minimum for a rectangle pattern to form on an hourly price chart
  • 20 day minimum for a rectangle pattern to form on a daily price chart.
  • 20 weeks minimum for a rectangle pattern to form on a weekly price chart.

Frequently Asked Questions About The Rectangle Pattern

Below are frequently asked questions about the rectangle chart pattern.

Is A Rectangle Pattern Bullish Or Bearish?

A rectangle pattern is neither bullish or bearish. It indicates that the price of a market is moving sideways within a price range and is not trending in any direction.

What Price Chart Timeframes Can A Rectangle Pattern Form On?

A rectangle pattern can form on any timeframe of price chart from a shorter timeframe 1-minute chart to a higher timeframe daily and weekly price chart.

What Does A Rectangle Pattern Tell You?

A rectangle pattern tells a trader that the price of the market where the pattern forms is in a defined trading range meaning there is no clear bullish or bearish trend and instead the price is moving sideways.