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Written by and copyright © 2005-2019 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions.
See Privacy/Disclaimer for more information. Some pattern names are the registered trademarks of their respective owners.
Statistics updated on 1/16/2009.
For more information on this pattern, read
Encyclopedia of Chart Patterns Second Edition  ,
pictured on the right, pages 563 to 578.
If you click on this link and then buy the book (or anything) at Amazon.com, the referral will help support this site. Thanks. -- Tom Bulkowski
$ $ $
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.
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Rectangle Bottom Chart Pattern
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Rectangle Bottoms: Important Bull Market Results
Overall performance rank for up/down breakouts (1 is best): Not ranked
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.
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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. |
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Rectangle Bottom Trading Tips
| Trading Tactic | Explanation |
| 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. |
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 The Measure Rule
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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.
-- Thomas Bulkowski
Other Rectangle Bottom Examples
Written by and copyright © 2005-2019 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions.
See Privacy/Disclaimer for more information. Some pattern names are the registered trademarks of their respective owners.
Disk full. Press F1 to belch.
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