What it looks like
At least two swing highs at about the same level (the ceiling) and at least two swing lows at about the same level (the floor), forming a horizontal box. The pattern completes when a candle closes above the ceiling. The height of the box is the distance from floor to ceiling.
What it means
Buyers and sellers were evenly matched, so price was boxed in. Each touch of the ceiling built up sell orders and stops above it. When price closes above the ceiling, buyers have won the balance and the market can move to find a new level. The longer and cleaner the box, the more traders are watching the break.
How to trade it
- 1
Draw the ceiling and floor through at least two touches each.
- 2
Confirmation: a candle closes above the ceiling.
- 3
Entry: buy the close, or a retest of the ceiling that holds from above.
- 4
Stop: back inside the box, below the ceiling. Example on gold: box from 4,000 to 4,025, close above at 4,028. Buy a retest at 4,026, stop at 4,016, a 10 point risk.
- 5
Target: the box height (25 points) from the break, about 4,050.
A close back inside the box.
Where it works best
After a quiet Asian session range on gold or a pre-open range on indices, broken at the London or New York open.
WickSpeak finds rectangle breakouts automatically and names them on the candles that made them. The note explains what the pattern is, how to trade it and that a close back inside the box proves it wrong. In Playbook you can use it as a condition in a play, alone or alongside other patterns and indicators (any of the 146 patterns can be a condition), and backtest it on past candles with your own costs.
Common mistakes
- Buying a wick above the ceiling before a candle has closed there.
- Drawing the box through only one touch on each side.
- Placing the stop too close to the ceiling, where a normal retest takes it out.
Related patterns
Questions traders ask
What is a rectangle pattern?
A range where price bounces between a flat ceiling and a flat floor, touching each at least twice. A close above or below the box is the breakout.
How do you trade a rectangle breakout?
Buy the close above the ceiling or a retest of it, with the stop back inside the box. Target the height of the box from the break.
Is a rectangle bullish or bearish?
Neither until it breaks. The direction of the close outside the box decides it.
What if the breakout fails?
A close back inside the box proves it wrong. A failed break above a range is often called a bull trap and can be traded the other way.