Continuation Patterns for trading

The following chart patterns are patterns you will find in a trend. As the market takes a break from the big moves and rests a bit, you will find one of these patterns emerge. They are a good indication that the market hasn’t finished its trend and the next trade you should be looking at will be with the recent trend direction.
Continuation patterns almost always have a "Pole" attached to them. This means that prior to the pattern, the market leading up to it will have moved into the pattern form above or below. The market was clearly trending in one direction andthe pattern that follows is a resting phase of that market before it carries on it's way.
pole formation
The market occasionally just wanders its way into some chart formations. Theseformations are still good setups, but they don't have continuation momentum a pattern with a Pole will have.
As the market is pausing, you will find price retracting into a narrower and narrower configuration. The market squeezes itself from both the top and bottom. The Pennant show up just before the market takes off in its original direction. Making this a Pennant, you will find that market leading into the formation creates a pole, a strong move that leads in to the pattern itself.
Bearish pennant, bullish pennant

Bearish Pennant formation
Bearish Pennant formation
Bullish Pennant formation
A Flag pattern is a take-a-break pattern as well. It starts off generally with a large quick move forming a fairly steep “pole”. Next comes the Flag formation as it gently moves up and down slightly against the initial move. To be a true Flag, the formation takes place between two equally separated lines, a small support and resistance channel. The Bear Flag is formed as a slightly rising formation while a Bull Flag is a slightly falling formation. After a large initial market move, there is a period of “covering”. That basically means traders who were in the initial large move are closing their positions. Some are closing their positions while others are opening new positions in the same direction as the initial move. This simultaneous buying and selling is like a tug-of-war between the bulls and the bears and the market doesn’t have the momentum to move in either way. Once the open positions are covered, the remaining open positions and with the addition of the new positions will usually force price to take off in its initial direction.
Flag Pattern Formation
Bearish Flag formation on a real chart:
Bearish Flag formation
Bullish Flag formation on a real chart:
A rectangle is a fancy term for a range. As price slows down after a bigger move, it will want to drift sideways for a bit. This drifting will have price floating up and down as regular business in the world influences price, but it’s pretty stable. A rectangle is price action that you can sandwich between two horizontal lines, support and resistance levels. You will find this after a big move, but also after the major marketparticipants go to sleep on a smaller timeframe. Rectangles are periods of equilibrium, and others say it’s a period of indecision. Either way it’s a pause in the market that has a clearly defined high and low.
A Rectangle can be very narrow as in a consolidated market, or a little wider where there is actual price movement inside of it. This is the classic formation for a “breakout” type of trade.
Rectangle pattern formation
Bearish Rectangle formation
Bearish Rectangle formation
Bullish Rectangle formation 
Bullish Rectangle formation
Flag and Pennat Indicator MT4
Flag and Pennant indicator MT4
Below the link for download the flag and pennant indicator MT4

Post a Comment

Previous Post Next Post