This time we will be looking at yet another continuation pattern – The Rectangle.

Although this formation goes by many names, it's one of the easiest patterns to spot on a price chart.

Charles Dow called this formation a line, but it is more commonly referred to as the rectangle, congestion area, or trading range.

This formation is identified by prices moving sideways between two parallel horizontal lines.

So, as a continuation pattern, the rectangle appears during a trend resulting in a pause where prices move sideways for a period of time, before continuing in the direction of the trend before the pause.

The pattern is considered completed when the price experiences a close outside the upper or lower line.

If the price closes above the upper line, it indicates that the trend will continue upwards, but if it closes below the bottom line, it indicates that the trend will continue downwards.

But volume patterns can be a good indicator here!
If the bounces are on higher volume, and the dips on lighter volume, that’s most likely a continuation pattern to the upside. However, if the reverse happens, it may be the warning signs of a potential trend reversal.

As for measuring techniques, the most common method is to measure the height between the upper and lower lines of the rectangle, and then project that vertical distance from the breakout point.

.And with that, we can conclude our module on continuation patterns.