- Continuation Patterns
- Triangles
- Wedges
- Pennants
- Flags and Rectangles
Continuation Patterns
- A prerequisite for any continuation pattern is the existence of a prior trend
- Continuation patterns indicate a temporary pause in the trend
- The next move will be in the same direction as the trend that preceded the formation
- Trading volume plays a important role in confirming these price patterns
The most common trend continuation patterns are:
- Triangles
- Wedges
- Flags and Pennants
- Rectangles
Triangles
Bullish Symmetrical Triangles
- The pattern contains at least two lower highs and two higher lows
- When these points are connected to an apex, the triangle is formed
- Volume should decrease as the price moves within the triangle
- The breakout is expected to happen between two-thirds to three-quarters of the width of the triangle
- Volume should increase as the market breaks out of the pattern
Bearish Symmetrical Triangles
- The pattern contains at least two higher lows and two lower highs
- When these points are connected to an apex, the triangle is formed
- Volume should decrease as the price moves within the triangle
- The breakout is expected to happen between two-thirds to three-quarters of the width of the triangle
- Volume should increase as the market breaks out of the pattern
Bullish Measuring Techniques
- Measure the height of the base of the triangle, and extend that distance from the breakout point
- The second technique is to draw a parallel line to the lower triangle line
- Where the parallel line meets the apex we know WHERE the price will be and WHEN
- Where the parallel line meets the apex we know WHERE the price will be and WHEN
Bearish Measuring Techniques
- First technique is to use the vertical height at the base and extend from the breakout point
- The second technique is to draw a parallel line to the upper triangle line
- Where the parallel line meets the apex we know WHERE the price will be and WHEN
- The price is expected to reach the target at the date where the Apex is
Bullish Wedges
- The pattern is identified by two converging trendlines, that come together at an apex
- It is an intermediate pattern that takes more than 25 candles to form but not more than 75 candles
- The Bullish Wedge has a noticeable slant to the downside against the prevailing uptrend
- A falling wedge is considered bullish
- Like triangles the same breakout periods and measuring techniques apply
Bearish Wedges
- Identified by two converging trendlines that come together at an apex
- It is an intermediate pattern that takes more than 25 candles to form but not more than 75 candles
- It has a noticeable slant to the upside, against the prevailing downtrend
- A rising wedge is considered bearish
- Like triangles the same breakout periods and measuring techniques apply
Bullish Flags and Pennants
- The flag and pennant represent brief pauses in a dynamic market move
- They are preceded by an almost straight line move called a flagpole, which happens on heavy volume
- Prices then pause for a few candles on very light volume
- The move continues on a burst of volume
- Both patterns occur at about the midpoint of the market move
Bearish Flags and Pennants
- The flag and pennant represent brief pauses in a dynamic market move
- They are preceded by an almost straight line move called a flagpole, which happens on heavy volume
- Prices then pause for a few candles on very light volume
- The move continues on a burst of volume
- Both patterns occur at about the midpoint of the market move
Bullish Rectangles
- The pattern is easily identified by at least two similar highs and lows
- If rallies are on heavy volume, then the formation is probably a continuation in the uptrend
- If the heavier volume is on the downside, then it can be considered a possible trend reversal
Bearish Rectangles
- The pattern is easily identified by at least two similar highs and lows
- If setbacks are on heavy volume, then it is probably a continuation in the downtrend
- If the heavier volume is on the upside, then it can be considered a possible trend reversal
