A rectangle is a pattern formed when price is confined by parallel support and resistance levels.
A rectangle exhibits a period of consolidation or indecision between buyers and sellers, these patterns a very common just before big Data announcements. When the market is ranging.
The price will test the support and resistance levels several times before eventually breaking out. From there, the price could trend in the direction of the breakout, whether it is to the upside or downside.
In the example above, the pair is contained by two key price levels of support and resistance, which are parallel to one another.
A bearish rectangle is formed when the price consolidates for a while during a downtrend.
In this example, price broke the bottom of the rectangle and continued downwards.
Once the pair falls below the support, it tends to make a move that is about the size of the pattern or greater. In the example above, the pair moved beyond the target so there would have been an opportunity to extend take profit levels.
After an uptrend, the price paused to consolidate for a period.
The price moved all the way up after breaking above the top of the rectangle. Long positions with a conservative stop loss to protect your investment.
As with the bearish rectangle, once the pair breaks out, it will usually make a move that’s at least the size of its previous range or even greater.