Introduction to Chart Patterns


By March 17, 2016 December 1st, 2018 No Comments

Back to “Technical Analysis Guide”

Pause for the Cause

If you’ve never heard of stock chart patterns like the rectangle before, you should know that they are part of a method of technical analysis used to evaluate the market and make decisions about which stocks are moving in the right direction. Although it might seem like the market is constantly in flux, there are patterns in the chaos that usually behave in the same way, time and time again. If you can track the behavior of a certain stock, you’ll see that increases and decreases in price are usually preceded and followed by recognizable patterns. These patterns become your alert to what is coming next..

The rectangular pattern is easy to spot in your stock charts by looking for a pair of comparable highs and lows. If you could draw on these charts, you’d see that these peaks and troughs can be connected with parallel lines and therefore form the top and bottom of a rectangular shape. You might also hear analysts refer to rectangles as consolidation zones, trading ranges, or congestion areas..

The rectangle is usually referred to as a continuation pattern, which means that its presence will indicate that no matter what is going on with the stock price at any given moment, it’s likely that overall the previous trend, whether up or down, will continue. If you think that you might have spotted this pattern look for two comparable highs and two comparable lows. These ups and downs can usually be connected to form a pair of parallel lines that make up the top and bottom of a recognizable rectangle.