Continuation patterns are the other type of patterns that you will be able to identify on the charts. They are usually shorter term than the reversal patterns, and the main difference from reversal patterns is that they suggest trend consolidations and continuations rather than reversing the trend. Continuation patterns commonly occur when a price starts going sideways after trending, and they indicate that the price action is nothing more than a pause in the trend. This is one reason that they are only seen as shorter-term. If they were long-term, the chart would be interpreted as trendless movement, and any subsequent trend would constitute a breakout.
As with a reversal pattern, for there to be a meaningful continuation pattern there must have been a trend to be continued. The direction of the trend is significant for some of the patterns, and other patterns simply indicate a continuation of whatever was prevailing before they occurred. Whenever a trend pauses, it must finally resolve into a reversal, a continuation, or trendless movement, and as mentioned previously most of the time trends continue rather than change. This is as first noted by Dow.
Continuation Patterns: Head and Shoulders, Triangles, Pennants and Flags
By their nature, continuation patterns do not result in such unexpected price movements as reversal patterns, but simply serve to give you an indication that you are trading in the right direction. As with reversals,you need to keep a close eye on the resolution of the pattern to make sure that the interpretation is working out.
The patterns given in the section are normally considered continuation patterns. Just as when we looked at reversal patterns, we noted that some could resolve into continuations, you may find that some of these continuation patterns can herald reversals. There are always exceptions to the general tendencies. Again, trading is not an exact science, but a process of stacking the odds in your favour so you come out on top. With that said, we’ll start by looking at triangles.
