Continuation pattern

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    What is a continuation pattern?

    continuation pattern is a pattern identified on a price chart that indicates a pause in a trend. It can indicate that the trend is likely to resume in the original direction, once the price 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 price ranges between support and resistance, and a breakout continuing in the original trend direction.

    Continuation Pattern

    1) Initial uptrend
    2) Consolidation zone defined by support and resistance
    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 ascending triangle 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 price makes higher lows. This indicates that the price is likely to breakout to the upside and offers a potential buying opportunity – hence a continuation pattern to the upside .

    Ascending Triangle

    Why are continuation patterns useful to traders?

    Continuation patterns help traders make sense of what seem to be random price movements in the market 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 reversal 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 triangle 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 chart in different ways. The patterns can be difficult to spot and it takes a lot 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: