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Encyclopedia of Chart Patterns 2nd Edition book.
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Getting Started in Chart Patterns, Second Edition book.
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Bulkowski's Rectangle Bottoms
Class Elliott Wave Fundamentals Psychology Quiz Studies Setups Software Tutorials More...
Busted
Patterns		 Candles Chart
Patterns		 Event
Patterns		 Small Patterns
As of 04/23/2019
  Industrials: 26,656 +145.34 +0.5%  
  Transports: 11,003 +26.03 +0.2%  
  Utilities: 773 +1.99 +0.3%  
  Nasdaq: 8,121 +105.55 +1.3%  
  S&P 500: 2,934 +25.71 +0.9%  
YTD
 +14.3%  
 +20.0%  
 +8.4%  
 +22.4%  
 +17.0%  
  Tom's Targets    Overview: 04/12/2019  
  Up arrow26,900 or 25,500 by 05/01/2019
  Up arrow11,200 or 10,500 by 05/01/2019
  Up arrow825 or 755 by 05/01/2019
  Up arrow8,250 or 7,850 by 05/15/2019
  Up arrow2,975 or 2,800 by 05/01/2019
As of 04/23/2019
  Industrials: 26,656 +145.34 +0.5%  
  Transports: 11,003 +26.03 +0.2%  
  Utilities: 773 +1.99 +0.3%  
  Nasdaq: 8,121 +105.55 +1.3%  
  S&P 500: 2,934 +25.71 +0.9%  
YTD
 +14.3%  
 +20.0%  
 +8.4%  
 +22.4%  
 +17.0%  
  Tom's Targets    Overview: 04/12/2019  
  Up arrow26,900 or 25,500 by 05/01/2019
  Up arrow11,200 or 10,500 by 05/01/2019
  Up arrow825 or 755 by 05/01/2019
  Up arrow8,250 or 7,850 by 05/15/2019
  Up arrow2,975 or 2,800 by 05/01/2019

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 EditionEncyclopedia of Chart Patterns 2nd Edition book., 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.

 

 
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): 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.

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 one trendline at least three time and the other trendline twice (5-touch minimum) using distinct peaks and valleys.
Volume trendTrends downward at least 71% of the time.
BreakoutUpward 59% 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.
Yearly lowRectangles with breakouts (up or down) near the yearly low perform best.
Partial rise/declineA partial rise predicts a downward breakout 75% of the time; a partial decline correctly predicts an upward breakout 77% 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 © 2005-2019 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.