Rectangle patterns form when price trades sideways between two parallel horizontal lines — a clearly defined support and resistance. Rectangles represent a period of equilibrium where buyers and sellers are evenly matched. The pattern resolves when price breaks decisively through one of the boundaries, often continuing in the direction of the prior trend.
Horizontal support and resistance forming parallel boundaries. At least two touches of each boundary for validation. Volume tends to decrease during formation. Continuation bias: breakout typically favours the prior trend direction. Can also function as reversal patterns in specific contexts.
Enter on a breakout above resistance (bullish) or below support (bearish) with expanding volume. Wait for a retest of the broken boundary as new support or resistance for a lower-risk entry. Trade bounces within the rectangle from support to resistance and vice versa during formation. Confirm breakout with momentum indicators crossing their signal lines.
Measured-move target equals the height of the rectangle projected from the breakout point. Place stops on the opposite side of the rectangle boundary. Trail stops using the broken support or resistance level. Exit range-bound trades near the opposite boundary with tight targets.
1H, 4H, Daily
Rectangles that form after strong trends have a higher probability of resolving as continuation patterns. Trading within the rectangle can be profitable but requires tight risk management — use the boundary as invalidation. The longer the rectangle forms, the more powerful the eventual breakout tends to be.
Pennants are short-term continuation patterns that form after a strong directional move. They resemble small symmetrical triangles, with converging trendlines creating a compact consolidation zone. Unlike flags, which have parallel channels, pennants converge to a point. The breakout typically occurs in the same direction as the preceding move, with the measured target based on the flagpole.
Diamond patterns are relatively rare reversal formations that combine a broadening pattern followed by a symmetrical triangle, creating a diamond-shaped outline on the chart. They typically appear at market tops (diamond top) or, less commonly, at bottoms (diamond bottom). The pattern signals an exhaustion of trend momentum as volatility first expands then contracts before a decisive breakout.
Rising and falling wedges are converging trendline patterns where both support and resistance slope in the same direction. A rising wedge (both lines slope upward, converging) is typically bearish, while a falling wedge (both lines slope downward, converging) is typically bullish. Wedges differ from triangles because both trendlines slope in the same direction rather than converging symmetrically.
Ascending triangles form when price creates a horizontal resistance line at the top and a rising support trendline at the bottom, indicating buyers are becoming more aggressive. Descending triangles feature a horizontal support floor with a declining resistance trendline, suggesting sellers are gaining control. Both patterns are typically continuation patterns that resolve in the direction of the prevailing trend with a measured move target equal to the triangle's height.