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A horizontal consolidation pattern with flat support and resistance. Channels define the boundaries of a trend and offer high-probability trading opportunities at support and resistance.
A Rectangle is a consolidation chart pattern formed when price trades between two horizontal trendlines — a flat resistance level above and a flat support level below. Price bounces between these boundaries, creating a rectangular shape on the chart.
Rectangles represent indecision. Neither buyers nor sellers can gain the upper hand, so price ranges sideways. The pattern resolves when one side finally overwhelms the other and price breaks out. The breakout direction determines the trade — rectangles can resolve bullish or bearish.
The longer price consolidates inside the rectangle, the more significant the eventual breakout. Extended consolidation builds energy as pending orders stack above resistance and below support.
Rectangles represent a standoff between buyers and sellers. After a prior move, the market pauses. Buyers defend support — they believe the asset is cheap at that level. Sellers defend resistance — they believe it's expensive there. Neither side can break the other's conviction.
Each bounce reinforces the levels. Traders place limit orders at support and resistance, creating a self-fulfilling cycle. The more times price respects a boundary, the more orders accumulate there — and the more explosive the eventual breakout becomes.
When the breakout finally comes, it traps one side completely. A break above resistance forces all the sellers who were shorting resistance to cover. A break below support forces all the dip-buyers to liquidate. This trapped liquidity fuels the breakout move.
Range trade: Buy at support, sell at resistance with tight stops. Breakout trade: Enter on confirmed break above resistance or below support with volume surge.
Below support for long breakouts, above resistance for short breakouts. For range trades, stop just beyond the opposite boundary.
Measure the height of the rectangle (resistance minus support) and project that distance from the breakout point. This is the measured move target.
Breakout trades typically offer 1:2 or better. Range trades within the rectangle are lower R:R but higher probability when levels are well-established.
Rectangles can be continuation or reversal patterns depending on the prior trend and breakout direction. A rectangle after an uptrend that breaks higher is bullish continuation. The same rectangle breaking lower is a reversal.
Always confirm this pattern with volume analysis and higher timeframe context. A pattern in isolation is just a shape - confluence with other factors is what creates high-probability setups.
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