In technical analysis, what do rectangles represent?

Rectangles in technical analysis are indicative of areas of consolidation. This pattern occurs when the price of a security moves within a range, confined by horizontal support and resistance levels, which leads to a period of indecision in the market. During this phase, buying and selling pressure equalizes, resulting in the price trading sideways.

Such areas of consolidation can signal that a stock is gathering momentum before making a significant price movement, either upward or downward, once the price breaks out of the rectangle pattern. Traders often view these consolidations as potential opportunities for entry or exit, depending on the direction of the breakout that follows.