Chart patterns
Rectangles (trading ranges)
3 min
A rectangle is a sideways range bounded by a roughly horizontal support floor and resistance ceiling, with price bouncing between them. It is a pause where buyers and sellers are evenly matched.
How to read it
Price oscillates inside the box, testing each boundary repeatedly. A rectangle is neutral until it breaks — it can resolve as either a continuation of the prior trend or a reversal, so the breakout direction is what matters, not the box itself.
Two ways to trade it
- Range trading — buy near support, sell near resistance, with a stop just outside the box. This works only while the range holds and is the higher-risk approach near a likely breakout.
- Breakout trading — wait for a decisive close outside the box and trade in that direction. Target — project the height of the rectangle from the breakout point.
The limitations
Rectangles invite false breakouts, especially "stop hunts" just beyond the boundary that reverse immediately. Demanding a close outside the box (not just a wick) and confirmation from volume filters many of these. And the longer a tight range persists, the more energy is stored — the eventual break can be sharp, so do not be caught complacent inside a quiet box.
This content is for educational and informational purposes only and is not investment, financial, tax or legal advice. Trading and investing carry risk, including the possible loss of capital. Any performance shown by third-party tools is hypothetical and not a promise of future results. Do your own research and consider professional advice before making any decision.