Series 3: 6.2.3.2.2. Congestion And The Rectangle Formation

6.2.3.2.2. Congestion and the Rectangle Formation

A rectangle formation represents a sideways interruption of a trend in which prices move between two parallel trend lines. The rectangle is sometimes referred to as a congestion area or a trading range. Congestion, also called consolidation, refers to a continuation pattern in which prices trade in a narrow range with no significant price movements.

A decisive close outside either the upper or lower boundary completes the rectangle and points the direction of the trend. The rectangle pattern is generally broken in the same direction as the previous trend. If the previous trend was bullish, the rectangle will break out in a bullish direction. However, it can easily be confused with