A Sideways Rectangle, also known as a Trading Range or consolidation pattern, represents a period when the price moves within a range, forming horizontal support and resistance levels. As the market is sideways for most of the time, this pattern occurs very frequently. It represents equilibrium in the market, where buying and selling pressures are roughly equal.
(Fig 5.2 - Rectangle)
The sideways Rectangle pattern is characterized by parallel horizontal lines that represent the upper and lower boundaries of the trading range. These lines connect multiple highs and lows within a period of consolidation wherein you can expect to find multiple candlestick and chart patterns that have little or no significance unless they form at or very close to the upper or lower boundary signalling a reversal. In the above example, you can see many examples of Bullish and Bearish Engulfing, Hammer and Reverse Hammer forming at or very close to the lower and upper boundaries respectively, resulting in a strong reversal.
The duration of a sideways Rectangle Pattern can vary widely, ranging from several hours to several days to several weeks, depending on the timeframe being analysed and the underlying market conditions. Eventually, the price typically breaks out of the trading range, either to the upside or the downside.
The breakouts are characterized by multiple false ones, wherein the price appears to break out of any one boundary only to come back into the range after a brief while. As mentioned before in the case of pattern failures, these false breakouts operate as traps and can move in the other direction very quickly.
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