Rectangle pattern

A named chart pattern formed by two approximately parallel horizontal boundaries: a line across a set of swing highs that stalled at a similar level, and a line across a set of swing lows that held at a similar one. Convention requires at least two touches of each boundary before the shape is drawn, since a single touch of each defines nothing but a bar. It is the same market condition a reader would describe in words as a range or a consolidation, given a name and a drawing rule.

The shape carries no direction of its own. A rectangle that forms inside an existing move and then continues it is called a continuation; the identical shape followed by a move the other way is called a reversal. The classification therefore comes from what happens afterwards, not from anything visible in the rectangle. The conventional measured objective, the height of the rectangle projected from the boundary that price left, is a rule of thumb from the pattern literature and not a property anyone has demonstrated.

Two things trip readers. The boundaries are areas rather than lines, drawn by eye, so whether a given bar counts as a touch or a break depends on whether the reader is using closing prices or intraday extremes, and the two produce different pictures of the same chart. And departures from the band frequently fail and return inside it, common enough to have its own name as a fakeout. Published tests of rectangles disagree with one another largely because each encodes different drawing and confirmation rules, and that disagreement has not narrowed in decades of literature.