What is a bearish rectangle pattern?The bearish Rectangle pattern is a bearish continuation pattern. This means a downwards breakout of this pattern will likely signal a stock crash.
Why is this a bearish signal? This normally occurs during a downtrend. During which time the stock stops heading down and stays between a support and resistance level. This is a cooling down time where the stock gathers strength for its next run. When the stock breaks below support it signals that the stock has stopped cooling off and is ready to run lower again and continue the trend.
volume High volume is needed to confirm a breakout. Breakouts with low volume could be a false alarm. Target The target for a Rectangle pattern is found by subtracting the difference between the top of the pattern by the bottom of the pattern and subtracting that from the bottom. In this pattern the patterns top is at $18. Its bottom is at $11. So we would expect a $7 move. $11-$7= $4 would be our target for this pattern. It did fall a large amount and actually overshot the pattern by a little going to $3. Trading the pattern Professional traders may choose to short the stock when it breaks support and place a stop above old support. Other Chart Patterns There are other chart patterns which signal either a reversal for a stock or that the trend is likely to continue. If you are getting to know these patterns here are a few others. Bearish Pennant - A bearish continuation pattern. Bullish symmetrical triangle - This normally comes right before a large run up in price. Double Top - This shows that the stock has came to a top and should reverse. |
