As of 07/26/2024
Indus: 40,589 +654.27 +1.6%
Trans: 15,920 +260.00 +1.7%
Utils: 971 +10.05 +1.0%
Nasdaq: 17,358 +176.16 +1.0%
S&P 500: 5,459 +59.88 +1.1%
|
YTD
+7.7%
+0.1%
+10.2%
+15.6%
+14.5%
|
 41,500 or 40,000 by 08/01/202416,500 or 15,600 by 08/01/20241,000 or 910 by 08/01/202419,200 or 17,800 by 08/01/20245,750 or 5,500 by 08/01/2024 |
As of 07/26/2024
Indus: 40,589 +654.27 +1.6%
Trans: 15,920 +260.00 +1.7%
Utils: 971 +10.05 +1.0%
Nasdaq: 17,358 +176.16 +1.0%
S&P 500: 5,459 +59.88 +1.1%
|
YTD
+7.7%
+0.1%
+10.2%
+15.6%
+14.5%
| |
|
41,500 or 40,000 by 08/01/202416,500 or 15,600 by 08/01/20241,000 or 910 by 08/01/202419,200 or 17,800 by 08/01/20245,750 or 5,500 by 08/01/2024 | ||
Trading lessons added 6/13/24.
For more information on this pattern, read Encyclopedia of Chart Patterns, 3rd Edition. If you click on the link and then buy the book (or anything) during the visit at Amazon.com, the referral will help support this site. Thanks.
$ $ $
Rectangle bottoms, so called because price enters the pattern from the top, are good performing chart patterns. The performance rank is near the top of the list.
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Rectangle Bottom Chart Pattern
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The above numbers are based on more than 900 of perfect trades. See the glossary for definitions.
| Characteristic | Discussion |
| Price trend | Downward leading to the chart pattern. |
| Shape | Prices have flat tops and flat bottoms, crossing the pattern from side to side following two parallel trendlines. |
| Trendlines | Two near horizontal trendlines bound price action. |
| Touches | Price should touch one trendline at least three time and the other trendline twice (5-touch minimum) using distinct peaks and valleys. |
| Volume trend | Trends downward at least 71% of the time. |
| Breakout | Upward 59% of the time. |
| Trading Tactic | Explanation | 
The Measure Rule
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| 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 (A, upward breakouts) or subtract it from the bottom trendline (B, 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 with upward breakouts perform substantially better than short ones. | |
| Volume trend | Rectangles with a rising volume trend outperform regardless of the breakout direction. | |
| Yearly low | Rectangles with breakouts (up or down) near the yearly low perform best. | |
| Partial rise/decline | A partial rise predicts a downward breakout 75% of the time; a partial decline correctly predicts an upward breakout 77% of the time. | |
| Throwbacks and pullbacks | Throwbacks and pullbacks hurt post breakout performance. |
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.
I present the information in slider format, so be sure to click the left or right arrows to view another slide.
Here I show a rectangle bottom with a downward breakout, as marked on the chart. The stock doesn't drop far before reversing and closing above the top of the rectangle. Price continues higher, reaching the ultimate high at almost 36 (not shown).
This was an easy trade to avoid. I drew two down-sloping trendlines, A and B, and expected the stock to reach that resistance and turn down. That's what happened with line A, at C. In other words, look for resistance setup by trendlines and avoid the trade because it could limit profit.
Here's an example of where Elliott wave counting came in handy. I didn't count the various up and down segments of the jagged red line (before trading, that is). I just assumed that the motive wave was over and I expected an ABC correction (green line) to send the stock higher. And that's what happened.
-- Thomas Bulkowski
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