The transitional or horizontal phase separating rising and falling price trends is a pattern known as a rectangle. This formation corresponds to the line formation developed from the Dow theory. The rectangle marking the turning point between the bull and bear phases, is termed a reversal pattern.

Reversal patterns at market tops are known as distribution areas or patterns (where the security is distributed from strong informed participants to weak uninformed ones), and those at market bottoms are called accumulation patterns (where the security passes from weak uninformed participants to strong informed ones). If the rectangle were completed with a victory for the buyers as the price pushed through resistance line, no reversal of the rising trend would occur. The breakout above resistance line would therefore have reaffirmed the underlying trend. In this case, the corrective phase associated with the formation of the rectangle would temporarily interrupt the bull market and become a consolidation pattern. Such formations are also referred to as consolidation at continuation patterns.

During the period of formation, there is no way of knowing in advance which way the price will ultimately break; therefore, it should always be assumed that the prevailing trend is in existence until it is proved to have been reversed.