Continuation Patterns

A trend in motion stays in motion. Continuation patterns are "pause buttons" where the market catches its breath before resuming the trend. These are often high-probability trades because you are trading with the trend.

The Flag and Pennant

The most reliable short-term continuation pattern.

Structure:

1. The Pole: A sharp, nearly vertical price move on high volume. (The surprise).
2. The Flag: A small, sloping channel against the trend. Low volume. (Profit booking).
3. The Breakout: Price explodes out of the flag in the direction of the pole. Volume returns.

Target: Length of the Pole projected from the Breakout point.

Triangles

Triangles represent volatility contraction. The range gets tighter and tighter until... pop.

1. Ascending Triangle (Bullish)

• Top: Flat resistance (Sellers at fixed price).
• Bottom: Rising support (Buyers getting desperate, bidding higher).
• Output: Usually breaks UP. The sellers run out of stock, and buyers force a breakout.

2. Descending Triangle (Bearish)

• Bottom: Flat support.
• Top: Falling resistance (Sellers are aggressive).
• Output: Usually breaks DOWN.

3. Symmetrical Triangle (Neutral)

• Both lines slope towards each other.
• Can break either way, but usually follows the original trend.

Cup and Handle

A long-term bullish pattern (weeks to years).

1. Cup: A rounded bottom "U" shape. Shows gradual accumulation.
2. Handle: A small pullback near the highs (looks like a flag). This shakes out the weak hands.
3. Breakout: Price clears the handle's resistance. Famous strategy of William O'Neil (CANSLIM).