Rectangles

Bullish 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 downward slant against the overall uptrend.

Bullish rectangles appear in uptrends and typically resolve themselves to the upside. Breakouts to the upside must be accompanied by a significant increase in volume to confirm the breakout. Failure to accomplish this doesn't automatically render the play invalid, but it does raise a red flag. Besides volume, the astute trader ought to look for a close above the most recent high. This price represents the previous area of selling pressure and an area where stockholders may be looking to “get out even.” It is recommended that if volume does not accompany the break, and if the stock fails to make a higher high within a reasonable amount of time, the trader should move a sell stop up to protect profits.
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.
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