In this video we'll talk about rectangle tops and bottoms.
So a rectangle top is simply in an uptrend an area where you get lots of choppy action and you can put
two trend lines of form a rectangle and then a break down through that.
This is also known as distribution.
That's because people who have accumulated a stock previously are distributing it to those who are foolish
enough to buy it.
This is where the quote unquote smart money gets out just as a rectangle bottom or accumulation.
And this isn't to say that accumulation can't happen in other shapes.
It's just that that's what this is.
It just happens to be in a rectangle then a rectangle bottom.
We just have the exact opposite value hundreds come in and take over.
So think about what's going on here you've got a trend.
And then suddenly you don't most of the time people will tell you that consolidation which is what that
is leads to continuation in most of the time.
That's true until it isn't.
And then when it isn't it becomes a signal that we're going against the previous uptrend and that something
has changed stop losses are easy.
You can either put him on the other side or in the middle depending on how aggressive you are of the
signal box you're aiming for at least so for it's two dollars high you're aiming for at least two dollars
on a break down below the support.
Quite often though to be honest with you we go much further than that to dollars.
In this case would be your minimum so here we have Kellogg and we had been in an uptrend and you can
see that we ended up forming a rectangle.
We broke down and it was the beginning of something rather negative.
You can measure the rectangle and you can see that we easily hit that and continued to go much further
and in fact this ended up being like a four or five to one type of situation.
So clearly that was an excellent sign.
Here you have a rally and then a pullback.
This pullback would have had people interested in perhaps trying to pick up visa.
You see we have this huge rectangle here.
We couldn't get to the bottom this last time and we broke out.
We retested it for support and continued to go higher.
So this is about as picture perfect as it gets you would take this from the level of the breakout and
you can see we got there rather quickly.
But having said that what's even more interesting about this one is that if you zoom way out you see
that this is a pullback in what had been an up trying to begin with.
So truthfully the trade here was to hang onto it as you can see we continued to go much much much higher.
These are great patterns.
They don't happen all the time but basically think of them as a failed consolidation pattern.
After a move up or down remember failed patterns mean things to.