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Continuation Patterns

Patrick Stockdale
Written by Patrick Stockdale | April 11, 2022

What Is A Continuation Pattern?

A continuation pattern is a technical analysis chart pattern that forms on the price chart of financial markets. It signals that the price action of the financial market will continue in the direction of the price trend. i.e. the price trend is likely to continue in the bullish or bearish direction of an already established trend.

Continuation patterns form in the middle part of a price trend or at later stages of a price trend.

If the price of a capital market is in a bullish trend, a continuation pattern will help signal to a trader that the trend may continue in the bullish direction and vice versa for a bearish trend.

Continuation Pattern Timeframes

Continuation patterns can form on any timeframe of price charts from lower tick charts to higher monthly or yearly price charts.

The most popular timeframes used by traders when finding and using continuation patterns include:

  • 1-Minute Charts: 1-minute charts are used by scalper and higher frequency traders looking to trade continuation patterns more frequently with a holding period of a few minutes.
  • 1-Hour Charts: 1-hour charts are used by day traders to trade continuation patterns with a holding period of a few hours.
  • Daily Charts: Daily charts are used by swing traders to trade continuation patterns with a holding period of a few days to a few weeks.
  • Weekly Charts: Weekly charts are used by longer-term traders to trade continuation patterns with a holding period of a few weeks to a few months.

These are the most common timeframes where continuation chart patterns are found in the price action.

Types Of Continuation Chart Patterns

There are many different types of continuation patterns found in technical analysis.

Types of continuation patterns include:

  • Triangles: Triangle chart patterns include ascending triangles, descending triangles and symmetrical chart patterns.
  • Pennants: Pennants look like triangles except they form over shorter price consolidation periods.
  • Flags: Flag chart patterns include bull flags and bear flags.
  • Rectangles: Rectangle chart patterns are shaped like a rectangle or a box with horizontal price consolidation or sideways price action.

Continuation Patterns Examples

Below are visual examples of different continuation chart patterns.

Example Of Triangle Continuation Chart Patterns

Below are visual examples of triangle chart patterns.

Ascending Triangle Example

Ascending triangle continuation pattern

An ascending triangle continuation pattern forms during a bullish price trend in a market. It signals that the bullish price trend will continue.

An ascending triangle is displayed by connecting the lower highs together with a resistance line and by connecting the support levels together with a horizontal support line.

Descending Triangle Example

Descending triangle continuation pattern

A descending triangle continuation pattern forms during a bearish price trend in the market. It signals that the bearish price trend may continue and prices will decline lower.

A descending triangle is displayed by drawing two lines, an upper resistance level joining lower highs together with a resistance line and a horizontal support level joining the support level together.

Symmetrical Triangle Example

Symmetrical triangle continuation pattern

A symmetrical triangle continuation pattern forms either during a bullish or bearish price trend in the market. It signals that the price trend may continue if it breaks out or breaks down from the pattern.

A symmetrical triangle is displayed by drawing two lines on a price chart, one declining resistance line which connects lower highs together and a rising support line that connects the rising support together.

Example Of Pennant Continuation Chart Patterns

Below are visual representations of pennant patterns.

Bullish Pennant Example

Bullish pennant continuation pattern

A bullish pennant continuation chart pattern forms during a bullish price trend and a consolidation period. It signals that the price may continue higher.

A bullish pennant is displayed by connecting the lower highs together with a resistance line and a rising support level to connect higher lows together.

Bearish Pennant Example

Bearish pennant continuation pattern

A bearish pennant continuation chart pattern forms during a bearish price trend and consolidation period. It signals that a bearish price trend may continue and prices may fall further.

A bearish pennant is displayed by connecting the lower highs of the consolidation phase with a resistance line and also by connecting the higher lows together with a rising support level.

Example Of Flags Continuation Chart Patterns

Below are visual representations of flag chart patterns.

Bull Flag Example

Bull flag continuation pattern

A bull flag continuation pattern forms during a bullish price trend in the market. It signals that the price of the market will continue to rise higher.

A bull flag is displayed by drawing two parallel declining lines for a resistance and a support level after a sharp increase in the price.

Bear Flag Example

Bear flag continuation pattern

A bear flag continuation pattern forms during a bearish price trend in the market. It signals that the price of the market will continue to go lower.

A bear flag is displayed by drawing two rising parallel lines for a resistance and a support level after a sharp decline in the price.

Example Of Rectangle Continuation Chart Patterns

Below are visual representations of rectangle chart patterns.

Bullish Rectangle Example

Bullish rectangle continuation pattern

A bullish rectangle continuation chart pattern is a pattern that forms during a bullish price trend and a price consolidation period. It signals that the price trend may continue to increase.

A bullish rectangle is displayed by drawing two parallel horizontal support and resistance lines.

Bearish Rectangle Example

Bearish rectangle continuation pattern

A bearish rectangle continuation chart pattern is a pattern that forms after a bearish price decline and price consolidation period. It signals that the price may continue to decline lower.

A bearish rectangle is displayed by drawing two parallel horizontal support and resistance lines.

How To Trade Continuation Patterns

The important parts of how to trade continuation patterns include how and where to enter, where to place a stop-loss order and where to set price targets.

To trade a continuation pattern:

  1. Wait for the chart pattern to form: Wait for one of the continuation patterns to form on the price chart of the financial market.
  2. Buy the breakout or short the breakdown: Wait for the price of the market to break out above a bullish continuation pattern resistance level to buy or wait for the price to break down below a bearish continuation pattern support level to short.
  3. Set stop-losses: Place stop-loss orders at the nearest swing low for a bullish continuation pattern and at the nearest swing high for a bearish continuation pattern.
  4. Set price targets: Price targets should be set at a minimum of 2 times the risk or at the price target that is the same range as the chart pattern itself.

These are the steps to trade the continuation patterns.

Continuation Patterns Benefits

The benefits of continuation chart patterns are:

  • They help provide logic to the price action: Continuation patterns can help traders find a logical structure to the price action in a market
  • They offer great rewards to risk: A break out from a continuation pattern can offer a great high reward with low risk.
  • They help traders join price trends: Continuation patterns help traders enter into a price trend where they missed the initial price movement.
  • They can be applied to multiple markets: Continuation patterns can form on any market from stocks, commodities, forex etc. This means they are not restricted to just a few markets.

These advantages make learning about continuation patterns important for new traders.

Continuation Patterns Limitations

The limitations of continuation patterns include:

  • They can create many false signals: Continuation patterns can form on price charts and create many false buy and shorting signals
  • They have a low win rate: Continuation patterns can have a low win rate. This means traders should be willing to have a 40% or lower win rate on their trades.
  • They can be hard to find: Newer traders may find it tough to find and identify these chart patterns.
  • Patterns can be subjective: One trader can see a pattern where another one does not. This can be an issue for traders thinking they spot patterns when in fact it is not clear.

These are the main drawbacks of continuation chart patterns that every trader should be aware of.

Differences Between Continuation vs Reversal Patterns

The differences between continuation patterns and price reversal chart patterns are:

  • Continuation patterns identify that the price trend will continue in the same trend direction
  • Reversal patterns identify that the price trend will change and reverse from the previous trend

Continuation patterns and reversal patterns are complete opposites, one signaling a continuation in price while the other signals a price reversal.