Chart pattern: Rectangle Pattern

What is a Rectangle Pattern?

Also known as a trading range (or congestion), the rectangle formation reflects a consolidation period. Upon breakout, it is likely to continue the original trend. Its failure will change it from a continuation of a reversal pattern.

This pattern is easy to spot, as it can be considered a minor sideways trend.

If it occurs within an uptrend and the breakout occurs on the upside, it is called a bullish rectangle. (See Figure below). The price objective is the height of the rectangle.

As Figure shows, the currency moves between well defined, flat support and resistance levels. A valid breakout may occur on either side from this consolidation period. The price target (GH) is equal to the height of the rectangle (‘G’H), measured from the breakout point H. In the numerical example, the price objective is 1.6200, due to the 100-pip difference between 1.6100 and 1.6000; and this target is measured from 1.6100.

Rectangle Pattern

If the consolidation occurs within a downtrend and the breakout continues the original trend, then it is called a bearish rectangle. (See Figure below) As shown in Figure below., the currency moves between well-defined, flat support and resistance levels.

A valid breakout may occur on either side of this consolidation period. The price objective (H’G‘) is equal in size to the height of the rectangle (GH), measured from the breakout point H. In the numerical example, the price objective is 100.00, due to the 100-pip difference between 102.00 and 101.00; and it is measured from 101.00.

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