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Bulkowski's Rectangle Tops

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As of 02/15/2019
  Industrials: 25,883 +443.86 +1.7%
  Transports: 10,568 +30.06 +0.3%
  Utilities: 739 +3.09 +0.4%
  Nasdaq: 7,472 +45.46 +0.6%
  S&P 500: 2,776 +29.87 +1.1%
YTD
+11.0%
+15.2%
+3.6%
+12.6%
+10.7%
Tom's Targets    Overview: 02/14/2019
26,000 or 24,600 by 03/01/2019
10,900 or 9,900 by 03/01/2019
755 or 725 by 03/01/2019
7,700 or 7,050 by 03/01/2019
2,825 or 2,650 by 03/01/2019

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 1/18/19.

For more information on this pattern, read Encyclopedia of Chart Patterns Second EditionEncyclopedia of Chart Patterns 2nd Edition book., pictured on the right, pages 579 to 594.

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Rectangle tops (or horizontal channels), so called because price enters the pattern from the bottom (creating a top).

 

Score your pattern
for performance

Rectangle top chart pattern

Rectangle Top Chart Pattern

Rectangle Tops 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%; 34%
Average rise/decline: 51%; 13%
Throwback/pullback rate: 66%; 64%
Percentage meeting price target for up/down breakouts: 78%; 54%

The above numbers are based on more than 500 perfect trades. See the glossary for definitions.

Rectangle Top Identification Guidelines

CharacteristicDiscussion
Price trendUpward 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 times and twice on the other trendline, using distinct peaks and valleys, but be flexible.
Volume trendTrends downward 70% of the time.
BreakoutUpward 63% of the time.
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Rectangle Top 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 (B, upward breakouts) or subtract it from the bottom trendline (A, 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 perform better than short ones.
Yearly lowRectangles, regardless of the breakout direction, perform best when the breakout is within a third of the yearly low.
Partial rise/declineA partial rise predicts a downward breakout 75% of the time; a partial decline correctly predicts an upward breakout 79% of the time.
ThrowbacksThrowbacks hurt post breakout performance.
Rectangle top measure rule
The Measure Rule
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Rectangle Top Example

Rectangle top chart pattern example

The above figure shows an example of a long rectangle top chart pattern. Price bounces between two parallel trendlines for what seems like forever, but it creates a strong move upward when price finally pierces the top trendline.

-- Thomas Bulkowski

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Other Rectangle Top 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. If debugging is the process of removing bugs, then programming is the process of putting them in.