Rectangle / Box Pattern / Trading Range
Reference values based on Bulkowski's "Encyclopedia of Chart Patterns". Data is primarily from U.S. markets and may differ for other markets.
A pattern where price moves horizontally within a range defined by horizontal resistance and support lines. It indicates equilibrium between buyers and sellers. While it often functions as a continuation pattern, it can also become a reversal pattern. The basic strategy is to position in the breakout direction.
Enter in the direction of a clear closing breakout above resistance or below support. Counter-trend trading within the range is possible but less reliable than breakout trading.
Project the rectangle's height (resistance to support range) from the breakout point in the breakout direction. For example: if the range is 100, project 100 from the breakout point.
Place a stop-loss near the opposite side of the rectangle. For an upward breakout, set at or slightly below the rectangle's midpoint.
Volume during formation is typically irregular or declining. A clear volume increase at breakout enhances pattern reliability.