The Rectangle Chart Pattern is a continuation pattern, which means once the pattern has appeared and the chart has broken out of it, the price will continue to travel in the same direction it was going before it hit the resistance. The Rectangle chart pattern can form in either a bullish direction or a bearish direction. Unlike most of the other chart patterns, the Rectangle doesn't always see a drop off in trading volume during the support and resistance phase, although, it does generally see a major increase in volume once the price breaks out from within the rectangle pattern. The rectangle pattern consists of Support and Resistance lines running parallel to each other with at least 4 points touching (or coming very close to) either the support line or the resistance line. As you can see in both Figure 1 and Figure 2, the price will be traveling in either a bull or bear direction, and then it will hit some resistance. Next, it will go back and forth a few times, sticking within the two well defined support and resistance lines. Once the price breaks through, it will continue traveling in the same direction it was going before.

If you want to try and determine a target price, once the chart has broken out of the rectangle, the most accurate way that I know, is to measure the distance of the rectangle, and add that to the direction the price is heading. Like I've mentioned for the other chart patterns, I personally prefer to rely on other technical indicators to let me know when its time to sell. Another common occurrence is that once a price has broken free, the line it passed through turns into the opposite character. for example, lets say you have a bullish chart, and a rectangle pattern appears, if the price breaks through the resistance line (at the top), that same resistance line, will usually become the support line if the price comes back down to that area again. This is a good tip to look for, if you are wondering when a chart might turn around and start going up again.

figure 1: Bullish Rectangle		figure 2: Bearish Rectangle

I find that the Rectangle Chart Pattern is one of the most common patterns that appear in the charting world, take a moment to look at Figure 3 which is an example I have provided of a rectangle pattern in action. You'll notice that they don't always follow the clean lines that were in Figures 1 and 2, but the pattern is there. and it reacted as we had predicted.

Figure 3: Real Example of Rectangle pattern, TSX: XBB, supplied by StockCharts.com

I hope the Rectangle Chart Pattern will help you in your investment desicions. For more information on chart patterns and links to other chart pattern articles check out the article: Introduction To Chart Patterns

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