Pro traders know it’s time to range trade when this classic pattern shows up

Traders analyze bearish and bullish rectangles to spot trend changes to know when to range trade stocks and cryptocurrencies. A bull trend is formed when demand exceeds supply, and a bear trend occurs when sellers overpower the buyers. When the bulls and bears hold their ground without budging, it results in the formation of a trading range.

Sometimes, this leads to the formation of a rectangle pattern, which can also be described as a consolidation or a congestion zone. Bearish and bullish rectangles are generally considered to be a continuation pattern, but on many occasions, they act as a reversal pattern that signals the completion of a major top or bottom.

Before diving in to learn more about the bullish and bearish rectangle patterns, let’s discuss how to identify them.

Basics of the rectangle pattern

A rectangle is formed when an asset forms at least two comparable tops and two bottoms that are almost at the same level. The two parallel lines can be used to join the high and the low points, forming the resistance and support lines of the rectangle.

The duration of the rectangle could range from a few weeks to several months, and if this time is shorter than three weeks, it is considered a flag. Typically, the longer an asset spends in consolidation, the larger the eventual breakout or breakdown from it.