Rectangle (trading range)
The rectangle is a continuation pattern in which the price swings between horizontal support and resistance, waiting for a breakout.
It represents a phase of balance between buyers and sellers, often a pause within a trend. Those who follow technical analysis buy near support and sell near resistance as long as the pattern holds, then follow the breakout.
How to spot it
At least two highs at the same level (resistance) and two lows at the same level (support). The pattern is complete when the price closes outside the rectangle; the indicative target is the height of the rectangle projected from the breakout.
Worked example
For a month a stock swings between €40 (support) and €44 (resistance). If it closes at €44.60, the breakout is upwards and the indicative target is 44 + (44 − 40) = €48.
How to read it
The more touches a level has, the more important it's considered. False breakouts are common: many wait for a close clearly beyond the level, or two consecutive closes.
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