Continuation Patterns: An Introduction

Forex trading is full of analysis, education, capital, spending a lot of time prediction, and many more. In previous articles, we are talking about candlestick patterns. Now, it's time to elaborate continuation pattern. In this article, we will talk about a to z in the continuation pattern.

Continuation patterns occur mid-trend and are a pause in the price action of varying durations. When these patterns occur, it can indicate that the trend is likely to resume after the pattern completes. A pattern is considered complete when the pattern has formed (can be drawn) and then "breaks out" of that pattern, potentially continuing on with the former trend. Continuation patterns can be seen on all time frames, from a tick chart to a daily or weekly chart. Common continuation patterns include triangles, flags, pennants, and rectangles.

Triangles are a common pattern and can simply be defined as a 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: symmetrical, ascending, and descending. For trading purposes, the three types of triangles can be traded similarly.

Symmetrical: A symmetrical 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.

Flags are a pause in the trend, where the price becomes confined in a small price range between parallel lines. This pause in the middle of a trend gives the pattern a flag-like appearance. Flags are generally short in duration, lasting several bars, and do not contain price swings back and forth as a trading range or trend channel would. Flags may be parallel or upward or downward sloping, as shown below.

Pennants are similar to a triangle, yet smaller; pennants are generally created by only several bars. While not a hard and fast rule, if a pennant contains more than 20 price bars, it can be considered a triangle. The pattern is created as prices converge, covering a relatively small price range mid-trend; this gives the pattern a pennant appearance.

Often there will be pauses in a trend in which the price action moves sideways, bound between parallel support and resistance lines. Rectangles, also known as trading ranges, can last for short periods or many years. This pattern is very common and can be seen often intra-day, as well as on longer-term time frames.

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