Rectangles are one of the most reliable chart patterns when they appear in close proximity to support or resistance during an up-trend. This also applies to other short-term patterns such as pennants. Volume should decline during the consolidation and spike up at the breakout. Manage your risk and improve your timing with Colin Twiggs' weekly review of the global markets.
Buying support is strong enough to prevent a retracement and normally it is only a matter of time before a breakout. A rectangle that forms immediately after a breakout, above the former resistance level, is also bullish.
Buyers and sellers are evenly matched, but support is likely to outlast resistance, resulting in an upward continuation.
However, the pattern is more prone to failure: In a Down-Trend A narrow rectangle that forms above support is a strong bear signal. Sellers are preventing a rally and support will most likely fail. A rectangle that forms immediately below a former support level is also bearish, but more prone to failure: Volume Confirmation Volume should decline during the consolidation and spike up at the breakout. The monthly What's New newsletter covers new articles on Trading and the Economy, as well as new software updates.More...