Head and Shoulders Continuation Pattern

The head and shoulders pattern can signal a continuation rather than a reversal, although it appears in this role rather less. Fortunately, you are not likely to get them confused, because the head and shoulders continuation appears in a downtrend, and the inverse head and shoulders appears in an uptrend. Here is a bearish continuation pattern –

bearish-continuation-pattern

So even in this context, if you see a head and shoulders pattern the odds favor that it will be followed by a downtrend, just as with the reversal situation. The bullish continuation pattern is just the opposite –

bullish-continuation-pattern

That completes our look at patterns. As you can see, they are understandable as merely reflections of the market sympathy – a shortcut to figuring out what the market is going through and how the participants are feeling. They are not magic, but they are valuable in giving you a rapid appreciation of the mood. You should always try to take account of the available information, such as the volume of trading, to verify your first impressions, and we’ll come back to the question of confirmation of technical indications later.

Summary

  • For a reversal pattern to work, you must have a trend
  • The patterns shown are common ones seen at reversals
  • You should wait for the pattern to pass previous levels to confirm that it is valid
  • Continuation patterns represent resting places in the trend
  • You should look for other confirmation before trading on a pattern

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The Masters Certificate in Technical Analysis - Module 4

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