What is a Continuation Pattern?

Traders need to be familiar with the experience of traders when price charts appear random. Although this may be true, there are patterns within these random movements. Technical analysis is about understanding the patterns and charts to predict future price movements. A continuation pattern is a sign that the current trend will continue. Let's learn how to identify and interpret them.

What's a continuation pattern?

Continuation patterns signify that the current price trend for a security or index is likely to continue. It is found in the middle or end of a trend and indicates a continuation of the current pattern. Traders use triangles, pennants and pennants to identify continuation patterns.

Types Of Continuation Patterns

Traders recognize a pattern is complete when it has formed, and then it "breaks out", continuing with the previous trend. Continuation patterns are possible to be observed in any time frame, whether it is a tick chart, a daily chart or a weekly chart.

A triangle is a convergence of price ranges, with lower lows and higher highs. A triangle is formed when price action converges. There are three types of triangles: symmetrical, ascending, and descending. Although the triangle continuation pattern can vary in length, they all have at least two swing highs and two swing lows in terms of price.

• Symmetrical: A downwardly-sloped upper limit and lower price bound create a symmetrical triangle.
• Ascending: An ascending triangle is a horizontal upper bound and downward sloping lowerbound formation.
• Descending: A descending triangle is one with a horizontal lower bound and an upper bound that slopes downward.

Flags

Flags are created when the trend is in a pause. This happens when the price of the product becomes very restricted. Flags are created when there is a pause in a trend. Flags can be short in length and may be either parallel or downward sloping.

Pennants

The shape of a pennant is similar to a triangle, but it is smaller. They can only be formed by several bars. If a pennant has more than 20 price bar, it is considered a triangle. This is not a general rule. The pattern forms when prices converge, covering a small price range in the middle of the trend.

Rectangles

Traders are often witness to a pause in which the price moves sideways between parallel support or resistance lines. Trading ranges and rectangles can last from a few days to several years. This pattern can be observed on a regular basis, whether it is intra-day or over a longer time period.

Working with Continuation patterns

A trader can profit from common patterns by being aware. Continuation patterns provide traders with a level of logic that allows them to trade in a way that is not possible using other methods.

The pattern may not be reliable all the time. Before making trade decisions, it is important to use a combination of patterns. A continuation pattern can appear in a trend, but it may reverse.

Sometimes traders may not be able to see the full pattern on the charts. This is known as a false breakout. This can happen multiple times before the pattern breaks down and there is a continuation or a reverse. Because of their popularity and visibility, rectangles are easy to mistake for false breakouts.

It is possible to be subjective when designing patterns. In terms of drawing or defining a pattern in real-time, traders might have different perspectives. Although this may seem complicated, it allows traders to have a unique view of the markets.

You will also need to have the ability to recognize patterns and look for them over time.

Conclusion

Flags, pennants and rectangles are continuation patterns that provide logic for what the markets could do. These patterns are often found in the middle of a trend and signify a continuation. The trend must continue if the pattern breaks out in the right direction. While continuation patterns can help traders make trading decisions, they may not always be reliable. There are a few problems with continuation patterns, such as a trend reversal instead of a continuation and multiple false breakouts at the beginning of a pattern.