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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Chart Patterns: After the Buy
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Bulkowski's Rectangle Bottoms

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Busted
Patterns
Candles Chart
Patterns
Event
Patterns
Small Patterns
Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 08/18/2017
21,675 -76.22 -0.4%
9,095 -57.14 -0.6%
738 3.96 0.5%
6,217 -5.38 -0.1%
2,426 -4.46 -0.2%
YTD
9.7%
0.6%
11.9%
15.5%
8.3%
Tom's Targets    Overview: 08/14/2017
22,250 or 21,500 by 09/01/2017
9,700 or 8,900 by 09/01/2017
750 or 710 by 09/01/2017
6,500 or 6,150 by 09/01/2017
2,525 or 2,425 by 09/01/2017

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

For more information on this pattern, read Encyclopedia of Chart Patterns Second EditionEncyclopedia of Chart Patterns 2nd Edition book., pictured on the right, pages 563 to 578.

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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.

 

 

Score your pattern
for performance
Rectangle bottom chart pattern
Rectangle Bottom Chart Pattern

Rectangle Bottoms: Important Bull Market Results

Overall performance rank for up/down breakouts (1 is best): 11 out of 23; 12 out of 21
Break even failure rate for up/down breakouts: 10%; 16%
Average rise/decline: 46%; 14%
Throwback/pullback rate: 53%; 69%
Percentage meeting price target for up/down breakouts: 85%; 50%

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

Rectangle Bottom Identification Guidelines

CharacteristicDiscussion
Price trendDownward leading to the chart pattern.
ShapePrices have flat tops and flat bottoms, crossing the pattern from side to side following two parallel trendlines.
TrendlinesTwo near horizontal trendlines bound price action.
TouchesPrice should touch each trendline at least twice using distinct peaks and valleys.
Volume trendTrends downward at least 66% of the time.
BreakoutDownward 55% of the time.
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Rectangle Bottom Trading Tips

Trading TacticExplanation
Measure ruleCompute 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 breakoutSince the breakout can be in any direction, wait for price to close outside the trendline before taking a position.
Intrapattern tradeIf the rectangle is tall enough, buy at the bottom trendline and sell at the top one, then reverse the trade.
HeightTall patterns with upward breakouts perform substantially better than short ones.
Volume trendRectangles with a rising volume trend outperform regardless of the breakout direction.
Volume shapeRectangles with a random volume shape perform best regardless of the breakout direction.
Breakout volumeHeavy breakout volume pushes price further regardless of the breakout direction.
Yearly middleRectangles with upward breakouts in the middle of the yearly price range perform best. Downward breakouts do best near the yearly low.
Partial rise/declineA partial rise predicts a downward breakout 83% of the time; a partial decline correctly predicts an upward breakout 81% of the time.
Throwbacks and pullbacksThrowbacks and pullbacks hurt post breakout performance.
Rectangle bottom measure rule
The Measure Rule
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Rectangle Bottom Example

Rectangle bottom chart pattern 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

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Other Rectangle Bottom Examples

See Also

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Disk full. Press F1 to belch.