What is a continuation patternWhat is a continuation pattern? A continuation pattern is ... More?
A continuation pattern is a pattern identified on a price chartWhat is a price chart in trading? A price chart is a graph... More that indicates a pause in a . It can indicate that the trendWhat is a market trend in trading? A market trend is the ten... More is likely to resume in the original direction, once the priceWhat are value stocks? A value company is a company that app... More breaks out of the pattern.
Overall, it will be made up of three components: the original trend (i.e. up or down), a consolidation zone (where the ranges between and , and a continuing in the original trend direction.
1) Initial uptrendWhat are uptrends in trading? When the price of an asset o... More
2) Consolidation zone defined by supportWhat are "support levels" in trading? A support level is a... More and resistanceWhat are "resistance" levels in trading? A resistance level ... More
3) Continuation of the uptrend
How can you identify a continuation pattern?
Continuation patterns can form in various shapes, with the main difference between them being the shape of the consolidation zone.
Some common types of continuation pattern include:
Below is an example of an pattern, which is also a continuation pattern. This occurs during an uptrend and is characterised by a usually flat upper resistance level with the lower support level sloping upwards as the priceWhat is price? The price is the measure of the value of good... More makes higher lows. This indicates that the price is likely to breakoutA breakout is where a price movement manages to overcome a... More to the upside and offers a potential buying opportunity – hence a continuation pattern to the upside.
Why are continuation patterns useful to traders?
Continuation patterns help make sense of what seem to be random price movements in the marketWhat are value stocks? A value company is a company that app... More and can provide high probability trading opportunities.
Are continuation patterns 100% reliable?
Continuation patterns are not 100% reliable. There is no guarantee a continuation of the original trend will follow a period of consolidation and there is a chance that a trend may occur.
Traders also need to watch out for false breakouts, where the price seems to start continuing on, but in fact, does not. An example of this is when the price pierces the support or resistance of the consolidation zone – such as the ascending triangleA triangle is a chart pattern that forms when neither the bu... More pattern – but does not actually close on the other side of the consolidation zone. These can occur multiple times before a full breakout and continuation of the trend occur.
It is also important to remember that these patterns are subjective and different traders may interpret a price in different ways. The patterns can be difficult to spot and it takes a lotIn forex trading, a lot is the standard unit to measure the ... More of practice to develop your skills in this area.
To learn more about the different types of continuation patterns, read through the lessons in our charting patterns module:
