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Rectangle Chart Patterns: Identify Consolidation Periods During Market Trends

Rectangle chart patterns, similar to pennants, are a type of continuation pattern. Continuation patterns usually signal consolidation during a trend in a trading range. After the consolidation breaks its trading range, the original bullish or bearish trend continues.

  • Rectangle Pattern – Consolidation in the shape of a rectangle
  • Pennant Pattern – Consolidation in the shape of a triangle

Regardless of shape, rectangle and pennant patterns are basically duplicate trading signals of consolidation followed by large bearish or bullish moves.

How Do I Spot Bearish Rectangle Chart Patterns?

A Bearish rectangle chart pattern is a day trading indicator that occurs while a financial instrument is in the middle of a downtrend. While a bearish rectangle pattern is forming, opportunist traders are attempting to ‘buy the dip’ or secure profits from short selling the financial instrument. After consolidating during a bear run, the trend will continue its downward momentum.

Looking at the chart below, you can see:

  1. The 1st leg of the initial bearish trend
  2. Followed by a consolidation period represented by a rectangle pattern
  3. The 2nd leg of the initial bearish trend

How Do I Spot Bullish Rectangle Chart Patterns?

Bullish rectangle chart patterns occur while a financial instrument is in the middle of an uptrend. While a bullish rectangle pattern is forming, opportunist traders are attempting to sell into the rally or take profits from the initial leg up. After consolidating during a bull run, the trend will continue its upward momentum.

Looking at the chart below, you can see:

  1. The 1st leg of the initial bullish trend
  2. Followed by a consolidation period represented by a rectangle pattern
  3. The 2nd leg of the initial bullish trend

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