Continuation Chart Patterns

What are Continuation Charts Patterns?

Continuation patterns indicate a pause in trend, implying that the previous direction will resume after a period of time. We will look at the following patterns: price channels, symmetrical triangles and flags & pennants.A technical analysis pattern that suggests a trend is exhibiting a temporary diversion in behavior, and will eventually continue on its existing trend. Continuation patterns tend to be the most accurate when the trend has existed for around one to three months. 



Significance of Continuation Charts Patterns

• Continuation patterns suggest that a market is only pausing for a while before the prevailing trend will resume. Continuation patterns are usually shorter-term in duration than reversal patterns and are often classified as intermediate-term chart patterns. Some of the most common continuation patterns include: flags, ascending and descending triangles, pennants, gaps, and rectangles.

• Having a good knowledge of continuation chart patterns allows us to speculate positively about the further course of the trend. It allows us to add more to our position. Those who wants to hold on for a longer period are at ease not worrying about temporary pull back. These can be bullish continuation patterns or bearish continuation patterns.

Types of Continuation Charts Patterns

Triangles - are common patterns depicting converging of the price range, with higher lows and lower highs. The converging price action creates a triangle formation. There are three basic types of triangles: symmetric, ascending and descending. For trading purposes, the three types of triangles can be traded similarly. 

• Symmetric - A symmetric triangle can be simply defined as a downward sloping, upper bound and an upward sloping, lower bound in price. 

• Ascending - An ascending triangle can be defined as a horizontal upper bound and upward sloping lower bound. 

• Descending - A descending triangle can be defined as a downward sloping upper bound and horizontal lower bound. 

Flag - The flag pattern forms what looks like a rectangle. The rectangle is formed by two parallel trend lines that act as support and resistance for the price until the price breaks out. In general, the flag will not be perfectly flat but will have its trend lines sloping. In general, the slope of the flag should move in the opposite direction of the initial sharp price movement; so if the initial movement were up, the flag should be downward sloping. 

Pennants - The pennant pattern is identical to the flag pattern in its setup and implications; the only difference is that the consolidation phase of a pennant pattern is characterized by converging trend lines rather than parallel trend lines. 










Rectangles - A Rectangle is a continuation pattern that forms as a trading range during a pause in the trend. The pattern is easily identifiable by two comparable highs and two comparable lows. The highs and lows can be connected to form two parallel lines that make up the top and bottom of a rectangle. Rectangles are sometimes referred to as trading ranges, consolidation zones or congestion areas. 



Conclusion - 


Continuation patterns, which include triangles, flags, pennants and rectangles, provide some logic on what the market may potentially do. Often these patterns are seen mid-trend and indicate a continuation of that trend, once the pattern is complete. In order for the trend to continue, the pattern must breakout in the correct direction. While continuation patterns can help traders make trading decisions, the patterns are not always reliable. Potential problems include a reversal in a trend instead of a continuation, and multiple false breakouts once the pattern is beginning to be established. 

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