Continuation Patterns

Although at first sight continuation patterns may appear to be unnecessary and not useful for trading, they can provide you with a clue about whether to stay in the market or to take your profit. Candlestick patterns are used much more for reversals, but continuation patterns have their place.

Here is the Rising Three Method –

In an uptrend, the first candlestick is a long white day. The next three days have small bodies, and may be either color, but the pattern is stronger with black candles. The important point is that they do not go outside the entire range including shadows of the first day. The fifth candle resumes the trend and concludes the pattern, opening above the previous close, and closing higher than the first day. This pattern is interpreted as the market taking a rest, perhaps because some traders feel the trend cannot continue. The fact that the middle candles only have short bodies, and do not push below the first day then inspires the bulls to take up the trend again. There is a similar Falling Three Method which occurs in downtrends.

There are a number of other continuation patterns, although not as many as the number of reversals.

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