Updated on March 6, 2023
A continuation pattern is a technical analysis term that refers to a pattern in a financial instrument’s price chart that indicates a pause in a trend but is expected to continue in the same direction once the pattern is complete. In other words, a continuation pattern is a period of consolidation in a trend, which is often followed by a continuation of the trend in the same direction.
Continuation patterns are commonly used by technical traders to identify potential entry and exit points in a trade. For example, if a stock is in an uptrend, a trader might look for a continuation pattern to form as a signal to buy the stock, with the expectation that the trend will continue once the pattern is complete.
What are different types of continuation patterns?
There are several types of continuation patterns, including flags, pennants, and rectangles. These patterns are formed by a period of price consolidation, which often includes a narrowing of the trading range and decreased volatility. The key to interpreting a continuation pattern is to identify the direction of the trend prior to the pattern, as this will indicate the expected direction of the trend once the pattern is complete.