Direct answer: what is a worked example of rectangles?
A worked example of a “rectangle” is a transparent, step-by-step scenario that shows how you would draw the rectangle boundaries, label the range, and compute a simple set of quantities (like range height). It is not a prediction of outcome. It only demonstrates the mechanics you could apply to historical candles.
Mechanism and definition: how rectangles are defined and measured
A rectangle (as a chart pattern concept) is a period where price oscillates within an identifiable horizontal range. The two main components are:
- Resistance boundary (upper line): repeated swing highs that are roughly at the same level.
- Support boundary (lower line): repeated swing lows that are roughly at the same level.
Stable mechanics vs variable conditions
- Stable mechanics: measuring the range boundaries (upper and lower levels) from visible highs/lows, then deriving the range size as a difference between them.
- Variable conditions: how tightly you choose the boundaries (drawing rules), the chart timeframe, and market conditions that change how “clean” the rectangle looks.
Important drawing assumption Because rectangles are visual and approximate, you must state a rule. For the worked example below, the rule is: upper boundary equals the average of the two identified swing-high values; lower boundary equals the average of the two identified swing-low values.
Worked numerical scenario (with every assumption)
Goal: show how to compute a rectangle’s range height and a simple “level interaction” checklist.
Assumptions (stated explicitly)
- You are using a historical price chart where each candle has a high and low.
- You select a rectangle window that contains exactly two clear swing highs and two clear swing lows.
- You use the drawing rule: upper boundary = average of the two swing-high highs; lower boundary = average of the two swing-low lows.
- You work with one symbol’s price in one consistent unit (for example, the quoted price on the chart). No live rates are used.
- You do not include transaction costs or execution effects in the calculations; the example only illustrates chart measurement.
The scenario values
Suppose, within your selected window:
- Swing highs (two values): 1.1200 and 1.1230
- Swing lows (two values): 1.1100 and 1.1130
Step 1: compute the rectangle boundaries
- Upper boundary (resistance level) = (1.1200 + 1.1230) / 2 = 1.1215
- Lower boundary (support level) = (1.1100 + 1.1130) / 2 = 1.1115
Step 2: compute the range height
- Range height = Upper − Lower = 1.1215 − 1.1115 = 0.0100 (price units)
Step 3: interpret “staying inside” the rectangle (a checklist)
After you draw the boundaries, you can check candle-by-candle behavior with a simple rule:
- If a candle’s high is at or below the upper boundary and its low is at or above the lower boundary, then that candle is considered inside the rectangle.
- If you see a candle whose high clearly exceeds the upper boundary or whose low clearly breaks below the lower boundary, that suggests range violation.
Material limitation of the checklist: “clearly” is undefined unless you add another rule, such as requiring the break to exceed the boundary by a minimum amount. Without that, different readers may label the same chart differently.
Limitations and risks (including at least one failure mode)
- Subjectivity in boundary placement: Two people using different drawing rules (or different timeframes) can draw different upper/lower levels and therefore get different range heights.
- False breakouts / re-entry: A candle can briefly move outside a boundary and then return into the range. In that case, the rectangle may have been “tested” rather than genuinely ended.
- Volatility expansion changes the structure: Even if the rectangle existed before, a later regime shift can make the price swing more widely, reducing the rectangle’s usefulness as a descriptive shape.
- Unmodeled trading frictions: Costs, execution delays, and spread changes can matter in real conditions. Since this worked example uses only chart measurements, it does not address those effects.
Failure mode example (using the same numbers): if the market later produces a candle with a high slightly above 1.1215 but the following candles return with highs below 1.1215, then a simple “violation” label can overstate what actually changed.