As of 11/29/2023   Indus: 35,430 +13.44 +0.0%     Trans: 14,817 +0.30 +0.0%     Utils: 862 -5.36 -0.6%     Nasdaq: 14,258 -23.27 -0.2%     S&P 500: 4,551 -4.31 -0.1%	YTD  +6.9%    +10.6%   -10.8%    +36.2%    +18.5%	Targets    Overview: 11/29/2023     34,500 or 36,400 by 12/15/2023   14,500 or 15,800 by 12/15/2023   900 or 825 by 12/15/2023   13,700 or 14,450 by 12/15/2023   4,450 or 4,650 by 12/15/2023
Chart Pattern Indicator: on 11/17/23

As of 11/29/2023   Indus: 35,430 +13.44 +0.0%     Trans: 14,817 +0.30 +0.0%     Utils: 862 -5.36 -0.6%     Nasdaq: 14,258 -23.27 -0.2%     S&P 500: 4,551 -4.31 -0.1%	YTD  +6.9%    +10.6%   -10.8%    +36.2%    +18.5%
Targets    Overview: 11/29/2023     34,500 or 36,400 by 12/15/2023   14,500 or 15,800 by 12/15/2023   900 or 825 by 12/15/2023   13,700 or 14,450 by 12/15/2023   4,450 or 4,650 by 12/15/2023
Chart Pattern Indicator: on 11/17/23

Bulkowski on Rectangle Tops

Statistics updated on 8/26/2020.

For more information on this pattern, read Encyclopedia of Chart Patterns Second Edition, 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). Upward breakouts are exceptional performers, but downward breakouts perform terribly.

Rectangle Tops: Important Bull Market Results

The above numbers are based on more than 1,000 perfect trades. See the glossary for definitions.

Rectangle Top: Identification Guidelines

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Rectangle Top: 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 (B, upward breakouts) or subtract it from the bottom trendline (A, 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 perform better than short ones.
Yearly low	Rectangles, regardless of the breakout direction, perform best when the breakout is within a third of the yearly low.
Partial rise/decline	A partial rise predicts a downward breakout 75% of the time; a partial decline correctly predicts an upward breakout 79% of the time.
Throwbacks	Throwbacks hurt post breakout performance.

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Rectangle Top: 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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See Also

• Trading pattern pairs: rectangle tops
• Slider quiz on rectangle tops
• Can we predict the breakout (by knowing the trend start and width)?
• Chart Pattern Review 6: pipes, pennants, and rectangles.
• Consider a flat base instead of a rectangle!
• Check rectangle bottoms just in case you found the wrong one.
• Score your rectangle bottom for performance.

 

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