A buy signal from a rectangle formation signals increasing optimism among investors and signals that the stock continues or enters a rising trend.
A stock that has triggered a buy signal from a rectangle formation is indicated to rise further. This is especially the case when the stock price is already in a rising trend channel. Investors have experienced a positive surprise which has triggered the signal, and optimism is on the increase.
Volume is a good indicator of the strength of the buy signal. High volume on rising prices indicates that aggressive buyers keep paying more in order to buy. This is positive for further development. High volume and positive volume balance will strengthen a buy signal.
Rectangle formations are usually continuing formations. This means that the price usually continues in the long term direction, or the long term trend, it was in before the formation. Rectangle formations that trigger buy signals in rising trends are therefore seen to give stronger signals than rectangle formations that trigger buy signals in falling trends.
Small rectangle formations can trigger false buy signals. This is especially the case when the formation is small, when the stock remains in a falling trend channel, and when volume development is negative. At buy signal from a rectangle formation the stock as a whole should be assessed, not solely the buy signal. Many investors have bought long term losers too soon following weak buy signals from rectangle formations. The following applies:
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Investtech guarantees neither the entirety nor accuracy of the analyses. Any consequent exposure related to the advice / signals which emerge in the analyses is completely and entirely at the investors own expense and risk. Investtech is not responsible for any loss, either directly or indirectly, which arises as a result of the use of Investtechs analyses. Details of any arising conflicts of interest will always appear in the investment recommendations. Further information about Investtechs analyses can be found here disclaimer.
The content provided by Investtech.com is NOT SEC or FSA regulated and is therefore not intended for US or UK consumers.