Trend Continuation Patterns Trend Following Forex Patterns

Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

  • That’s why you need to know how to identify patterns and continuation signals.
  • With the right mindset and an eye for patterns, you can spot safer ways to take trades.
  • Examples of bullish continuation patterns include ascending triangles and bull flags.
  • Traders can only take profits depending on the breakout point and trend direction.
  • Patterns can also be subjective, as what one trader sees is not what another trader sees, or how another trader would draw or define the pattern in real time.

We describe all the pattern in detail later on, meanwhile, just get familiar with a visual look for the overall understanding. In the latter market, IoT and the influx of patient data collected via wearable devices sets the stage for analytics. Nisum, a technology consulting firm based in Silicon Valley, is finding vertically oriented data analytics opportunities.

Determining Where To Set A Price Target

For example, if the prevailing trend is up, they will buy if the price breaks out of the pattern to the upside. Other traders will take a trade in the breakout direction even if it goes against the prevailing trend. These are lower odds trades, but pay off if the trend is reversing direction. Understanding continuation pattern ins and outs and a trading plan built upon pattern features may serve in your favor when trading. Here’s a quick list of steps you can pay attention to when being strategic about your continuation pattern trading [If you believe a pennant pattern is forming]. Continuation patterns supply some logic to the price action trading strategies — by knowing the patterns, you can create various strategies to benefit from common patterns repeating each other over time.

  • Below are real-life visual technical analysis continuation chart patterns examples illustrated on the price charts of financial markets.
  • This is an important tool for traders with its well-defined structure which provides a clear entry and exit point, making it easy for all traders to identify.
  • Strong price trends prior to the pattern forming tend to offer more reliable trading signals compared to weaker price trends prior to the pattern forming leading to lower odds of the pattern being successful.
  • Traders seeking to harness the power of continuation patterns must familiarize themselves with different pattern formations and apply this knowledge to their trading strategies.

These continuation patterns provide crucial information for traders, offering insights into possible trend continuations. However, it’s essential to exercise caution and utilize other technical analysis tools for confirmation before entering a trade based on continuation patterns. Various types of continuation patterns trend continuation patterns exist, including triangles, flags, and pennants, each with distinct features that traders must recognize to make well-informed decisions. These patterns typically form in the middle of an existing trend, providing traders the opportunity to assess whether the trend will persist or experience a reversal.

While flags move between parallel lines ascending, descending, or sideways, pennants move and form a triangle shape. One important pattern is the trend continuation pattern, suggesting that the price will keep moving in the same direction after completing the pattern. This can be compared to a road trip where you take breaks but eventually continue driving in the same direction. The price gets squeezed into a narrow range between a trend and a resistance level.

The trader can then set a stop loss slightly below the breakout level to minimize the risk of potential price reversals. Stop loss position depends on the resistance level — you can put the stop right below the resistance or within the narrowing channel range pretty close to that level. Overall, descending pennants are as reliable as any other flag and pennant patterns but less reliable compared to trading triangles. The borders of the flag pattern are directed against the main trend. The flag pennant pattern may indicate that the bears took the correction as a reversal.


It’s also worth noting that the formation of the flag pennant pattern only signals the possibility of market continuation, so we advise you to use additional indicators before making any trading decisions. Pennant patterns are continuation chart patterns that form in financial securities and they include both bullish pennants that form in uptrends and bearish pennants that form in downtrends. A pennant pattern is similar in shape to a flag pattern with the only difference being that pennant patterns have a triangular shape whereas a flag pattern has a rectangular shape. A triangle continuation pattern occurs when the exchange rate of a currency pair moves within a pair of converging trend lines that form a triangular shape. This pattern typically indicates a temporary pause in the current trend before the currency pair’s exchange rate can gather enough momentum to continue to move in the same direction.

Trend Continuation Patterns: Basic Working Principles

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Technical analysts look for certain types of patterns that generally indicate that a market will reverse or continue moving in a certain direction. When entering and exiting positions, you should generally consider your overall trading strategy and risk management parameters.

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Compare that to the volume with the first signal — where it breaks out of the gun pattern. Notice the low volume where it breaks resistance on the triangle. It can be easy to get faked out if you’re only looking for breakouts.

The information and data herein have been obtained from sources we believe to be reliable. Such information has not been verified and we make no representation or warranty as to its accuracy, completeness or correctness. Any opinions or estimates herein reflect the judgment of the authors of the report at the date of this communication and are subject to change at any time without notice.

Rectangle patterns is a pattern that forms on the price charts of a financial market when the price moves within a sideways narrow range with a clear horizontal support price and resistance price. A rectangle chart pattern can be either a reversal or continuation pattern depending on which direction price breaks out from. They are often found in strong uptrends and downtrends and can be either bullish or bearish. They are most indicative of a strong breakout when their waves (in the rectangle area) are tight and bounce up and down at equal heights, bouncing up to the height where the initial trend finished. For example, you might want to consider using continuation patterns prudently in conjunction with other technical analysis tools like transaction volume and moving averages.

Descending Triangle: Forex Chart Pattern

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