Rectangle Pattern
A rectangle is a consolidation pattern where price bounces between horizontal support and resistance, creating a sideways channel. It's also called a range or trading range.
Understanding the Concept
Rectangles are pauses in the trend. Price goes nowhere while bulls and bears battle for control. The longer the rectangle, the more significant the eventual breakout. You can trade two ways: range trading (buy support, sell resistance) or breakout trading (wait for price to escape). Volume typically decreases during the rectangle and spikes on breakout. The measured move target is the rectangle's height added to (or subtracted from) the breakout point. Rectangles work on any timeframe, from intraday to monthly charts.
Real-World Example
Bitcoin trades between $38,000 and $42,000 for six weeks. Traders buy at $38,000 and sell at $42,000. Eventually, BTC breaks above $42,000 with volume—target is $46,000 (the $4,000 height added to breakout).
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