A Rectangle is a chart pattern characterized by two horizontal trend lines that serve as distinct support and resistance levels. Each trend line must include at least two peaks or troughs. Rectangles are recognized as consolidation patterns, signifying an ongoing struggle between buyers and sellers, with prices confined within a specific range. In the example above, the pair is clearly limited by two parallel key price levels.

Unlike other chart patterns that typically feature diagonal or sloping trend lines, a Rectangle is defined by support and resistance levels represented by horizontal or flat trend lines. In practice, these trend lines may not be perfectly horizontal and could exhibit a slight incline. The Rectangle can function as either a continuation or a reversal chart pattern. As a reversal pattern, it signifies the end of a trend, leading to a price movement in the opposite direction. Conversely, as a continuation pattern, it indicates a temporary pause in the current trend, with the expectation that the trend will eventually resume.

The likelihood of a reversal or continuation during a downtrend is roughly equal, but in an uptrend, the continuation scenario is more likely. The support and resistance levels should be tested multiple times, and based on the distance between them, traders can sell when the price reaches resistance and buy when it hits support. When the price breaks out of a Rectangle, interpreting the direction can be challenging due to the uncertainty of the price movement. While the Rectangle is more likely to continue the existing trend, if it does not, traders should watch for the price to re-enter the Rectangle and trade sideways again or break out on the opposite side.

Rectangles that form at the peak or trough of a trend often evolve into reversal chart patterns such as a Double Top, Double Bottom, Triple Top, or Triple Bottom. If the Rectangle persists in an uptrend, with a breakout occurring upwards, it is termed bullish. Conversely, if the Rectangle continues in a downtrend, with a breakout occurring downwards, it is labeled bearish. In both uptrends and downtrends, volume is likely to decrease as the pattern completes its formation.