Continuation patterns may offer lucrative entry opportunities for trading the polar opposite of the current trend. Discover more about using continuation patterns in trading and the ideal bearish and bullish combinations in the following paragraphs.
What are Continuation Patterns?
A form of recognisable chart pattern called a continuation pattern foretells the continuation of a trend after a brief period of consolidation. Consolidation is indicated by sideways price movement. When there is a significant breakout from the consolidation zone, which results in the previous trend continuing, the pattern is finished. Building continuation patterns often takes place over short- to medium-term time horizons.
If you're new to trading forex with continuation patterns, you can learn the method with the Professional Trader development programme from NP Financials. You'll get 24/7 of training from a full-time, knowledgeable forex trader.
4 Bullish Continuation Patterns
In the midst of an uptrend, bullish continuation patterns can emerge and are difficult to spot. The section that follows provides a description of the key bullish continuation patterns.
1: Ascending triangle
A consolidation pattern known as an ascending triangle forms in the middle of a trend and often portends that the trend will continue. The pattern is formed by drawing two converging trendlines, an ascending lower trendline and a flat upper trendline, when the price momentarily goes sideways. Traders look for a subsequent breakout that goes in the direction of the prior trend as a signal to enter a trade.
2: Bullish Pennant
A favourable A pennant pattern, a continuation chart pattern, first appears in response to a security's significant, abrupt upward gain. The price resumes moving with the same initial vigour in the direction of the trend after a brief period of consolidation.
It is important to distinguish between the larger, symmetrical triangle pattern and the smaller, triangular Pennant pattern, which is made up of many forex candlesticks.
3: Bullish Flag
The bullish flag pattern is a valuable one for traders to learn. Because it grants a momentary reprieve to a swift initial motion, the bull flag typically refers to explosive manoeuvres. The bull flag may offer more appealing entry locations, but both the pennant pattern and the bull flag are suggestive of a swift and abrupt price move.
A channel that slopes downward and two parallel trendlines that run counter to the trend that came before it identify the bull flag.
4: Bullish Rectangle pattern
The rectangle pattern indicates a trend halt when price is moving horizontally between parallel support and resistance zones. The pattern predicts that the price will level off before picking up where the previous trend left off. This pattern also has the benefit of allowing traders to trade either the ultimate breakout, the range, or both.
5 Bearish Continuation Patterns
As a fall progresses, bearish continuation patterns start to appear. These patterns are easy to recognise. The previously indicated patterns have the similar effect for the bearish versions, but in the other way. The main bearish continuation patterns are described below.
1: Descending Triangle
The descending triangle pattern, which forms in the middle of a trend and often portends the continuation of the current downward trend, is a consolidation pattern. The pattern is formed by the drawing of two convergent trendlines, an upper trendline that is dropping and a lower trendline that is flat. Traders look for a following breakout in the direction of the prior trend before entering a trade.
2: Bearish Pennant
The bearish pennant, a continuation chart pattern, appears when a security goes through a substantial, rapid decrease. Before the price continues to decrease in the direction of the present trend, it takes shape over a brief time of consolidation.
3: Bearish flag
Similar to the bullish flag, the bearish flag is typically accompanied with explosive moves that occur both before and after it appears.
The bear flag's distinguishing characteristics are two parallel trendlines slanted upwards against the main trend.
The flag should not be confused with the rectangle pattern. The flag is completed in one to three weeks as opposed to the rectangle design and has a distinct gradient.
4: Bearish Rectangle
The bearish rectangle pattern, in which the price oscillates between parallel support and resistance levels, signifies a break in the trend. The pattern predicts that the price will level off before picking up where the previous trend left off. For traders, the range, the ultimate breakout, or both, are trading alternatives.
TRADING CONTINUATION PATTERNS
As long as traders abide by the following recommendations, continuation patterns typically act as trustworthy indicators of potential price movement:
- Determine the trend's direction before the price starts to consolidate.
- Trendlines can be used to identify the likely continuation pattern that is developing.
- Set appropriate stops and limits after the continuation pattern has been appropriately spotted, keeping in mind a favourable risk-to-reward ratio.
Traders might keep an eye out for a strong breakout in the trend's direction before joining. Furthermore, traders could consider putting in a tight stop to prevent a false breakout and trailing it if the market moves in their favour. Consider applying this and other risk-management strategies.
What Is Difference B/w Continuation Patterns of Forex Stock Trading?
FX and stock trading both use the same continuation patterns. The same level of confidence can be put to use when using continuation patterns, despite the apparent differences between stocks and FX. It is less about the market itself and more about what the pattern reveals about pricing activity.