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Bullish Patterns
Symmetrical Triangles
Ascending Triangles
Rectangles
Pennants
Flags
Wedges
Head & Shoulder Bottom
Cup & Handle
Trendlines

Neutral Patterns
Symmetrical Triangles
Rectangles

Bearish Patterns
Symmetrical Triangles
Descending Triangles
Rectangles
Pennants
Flags
Wedges
Head & Shoulder Top
Trendlines

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Rectangles

Bearish rectangles represent large periods of doubt and indecision. They are characterized by parallel trendlines as the forces of supply and demand are nearly equal. The pattern is typically large and forms either horizontally or with a slight upward slant against the overall uptrend.

Like symmetrical triangles, breakouts to the upside require a volume surge upon breakout, but the best breaks to the downside occur on average volume only to see volume ramp up as the stock falls.

Bearish rectangles appear in downtrends and typically resolve themselves to the downside. Breakdowns do not have the same volume or movement requirements as their opposite upside breaks. In fact, when stock breaks support with a massive volume surge, it often signals that of a capitulation sell-off and the stock rebounds shortly after. The best downside breaks occur on average volume followed by the stock drifting lower for a few days on increasing volume. Psychologically, when a stock first breaks support, stockholders become concerned; many of them show a loss and some sell. As the stock trades lower, concern becomes fear and the selling accelerates. Then fear becomes panic, and people sell regardless of price. This is why there typically is a delayed volume surge with breaks to the downside.

If the rectangle is large, the expected price movement is approximately equal to the height of the rectangle. If the pattern is on the smaller size, then the expected price movement should mirror the price movement preceding the pattern.

On a side note, rectangles are difficult to play. Symmetrical triangles have converging trendlines, and therefore must break by a certain day. But since rectangles have parallel trendlines – and therefore theoretically can go on for many months - no time horizon is offered as to when the stock will most likely break.




CIMA gapped down on big volume and then traded into a bearish rectangle pattern. These patterns typically resolve themselves in the direction of the trend which was obviously down. In this situation, traders need to be aware of a possible attempt at filling the gap, but once support was taken out, the stock couldn't even muster any type of bounce for over a month.



CVC was in a steady downtrend when it formed this bearish rectangle pattern. The false break down in July serves as example as to the difficulty in trading such patterns. Unlike triangles which have converging trendlines and therefore must break down by a certain day, rectangles can last years, and false moves in both directions are very common.



Textbook play here. ADIC was weak and then trended sideways between parallel trendlines. Once support was taken out, the downtrend continued and made for a nice trade for those who like to enter positions and patiently let them run their course.


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