DEFINITION of 'Rectangles'

A technical trading pattern in which a security's value ranges between two horizontal price points, creating a rectangle on a trader's screen. Rectangles occur in situations where a security is consistently bought up, when a lower price value is established, and sold down, when an upper value is similarly established. These price values remain "hard" values for a definite period, which is what creates the rectangular pattern.

BREAKING DOWN 'Rectangles'

Often rigid trading patterns, such as rectangles, are associated with well-informed investors buying and selling a security. Large price movements in one direction or another are not uncommon, when either the upper or lower limits of the rectangle's pattern are broken. Novice traders would be best to stay away from such patterns where a clear indicator is not present.

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