Rectangle Bottoms

As of 08/20/2019

Indus: 25,962 -173.35 -0.7%

Trans: 10,006 -75.35 -0.7%

Utils: 834 -1.95 -0.2%

Nasdaq: 7,949 -54.25 -0.7%

S&P 500: 2,901 -23.14 -0.8%

YTD

+11.3%

+9.1%

+17.0%

+19.8%

+15.7%

Targets Overview: 08/15/2019

27,200 or 24,900 by 09/01/2019

10,700 or 9,550 by 09/01/2019

850 or 790 by 09/01/2019

8,200 or 7,400 by 09/01/2019

3,000 or 2,750 by 09/01/2019

Chart pattern indicator: Arrows

on 8/16/19

As of 08/20/2019

Indus: 25,962 -173.35 -0.7%

Trans: 10,006 -75.35 -0.7%

Utils: 834 -1.95 -0.2%

Nasdaq: 7,949 -54.25 -0.7%

S&P 500: 2,901 -23.14 -0.8%

YTD

+11.3%

+9.1%

+17.0%

+19.8%

+15.7%

Targets Overview: 08/15/2019

27,200 or 24,900 by 09/01/2019

10,700 or 9,550 by 09/01/2019

850 or 790 by 09/01/2019

8,200 or 7,400 by 09/01/2019

3,000 or 2,750 by 09/01/2019

Chart pattern indicator: Arrows

on 8/16/19

Bulkowski's Rectangle Bottoms

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Rectangle bottoms, so called because price enters the pattern from the top, are mid list performing chart patterns. The failure rate is higher than other chart patterns, but the average rise in a bull market is quite good. However, rectangle bottoms (or horizontal channels) are rare.

Rectangle Bottoms: Important Bull Market Results

Overall performance rank for up/down breakouts (1 is best): 26 out of 56/4 out of 53

Break even failure rate for up/down breakouts: 15%; 24%

Average rise/decline: 47%; 16%

Throwback/pullback rate: 65%; 66%

Percentage meeting price target for up/down breakouts: 78%; 55%

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

Rectangle Bottom: Identification Guidelines

Characteristic	Discussion
Price trend	Downward leading to the chart pattern.
Shape	Prices have flat tops and flat bottoms, crossing the pattern from side to side following two parallel trendlines.
Trendlines	Two near horizontal trendlines bound price action.
Touches	Price should touch one trendline at least three time and the other trendline twice (5-touch minimum) using distinct peaks and valleys.
Volume trend	Trends downward at least 71% of the time.
Breakout	Upward 59% of the time.

Rectangle Bottom: Trading Tips

Trading Tactic	Explanation	The Measure Rule
Measure rule	Compute the height between the two trendlines (A and B in the measure rule figure to the right) and then multiply it by the above 'percentage meeting price target.' Add it to the price of the top trendline (A, upward breakouts) or subtract it from the bottom trendline (B, downward breakouts) to get a target price (C).
Wait for breakout	Since the breakout can be in any direction, wait for price to close outside the trendline before taking a position.
Intrapattern trade	If the rectangle is tall enough, buy at the bottom trendline and sell at the top one, then reverse the trade.
Height	Tall patterns with upward breakouts perform substantially better than short ones.
Volume trend	Rectangles with a rising volume trend outperform regardless of the breakout direction.
Yearly low	Rectangles with breakouts (up or down) near the yearly low perform best.
Partial rise/decline	A partial rise predicts a downward breakout 75% of the time; a partial decline correctly predicts an upward breakout 77% of the time.
Throwbacks and pullbacks	Throwbacks and pullbacks hurt post breakout performance.

Rectangle Bottom: Example

The above figure shows an example of a rectangle bottom chart pattern. Price bounces between two parallel trendlines. Few chart patterns are perfect and the one shown has price peaking out the top at B. A pullback at A allows traders that own the stock another opportunity to exit a position before the downtrend resumes.

Rectangle Bottom: Other Examples