A continuation pattern is a chart pattern described as a series of price movements that indicate that there is a temporary halt in the current prevailing trend, but that the current trend should continue after the break.
Chart patterns can be divided into two broad categories: continuation and reversal patterns.
Continuation patterns suggest that after the chart pattern completes, the price will continue to move in the same direction that was prior to the chart pattern.
To make it easy to remember, continuation chart patterns continue the current trend.
Continuation patterns are typically traded by waiting for a breakout and entering a (long or short) position in the breakout’s direction,
Ideally, the breakout is in the SAME direction as the trend.
Not every continuation pattern will result in a trend continuation, where the price resumes moving in the current trend. Some will result in a trend reversal, where the price moves opposite of the current trend.
By waiting for the breakout, you will know whether which one it’ll be.
Examples of continuation chart patterns include:
- Flags
- Pennants
- Rectangles
- Triangles
Chart patterns are used as a way to explain the activities of buyers and sellers by displaying the forces of supply and demand in a visual form.
You are able to see when the forces of demand (bulls) are in control, and when the forces of supply (bears) are in control.
As a “visual summary” of all buying and selling activity, chart patterns provide a “picture” of the battle raging between the bulls and bears.
Chart patterns and technical analysis can help determine who is winning the battle, which allows traders to position themselves accordingly.
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