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Basic Chart
Patterns: Continuation
A market trend tends to persist, as we
mentioned in the previous section. As long as price action continues
to respect a trend by bouncing off a trend line, the trend line is
perhaps the most powerful continuation pattern. But other price
movements also suggest that the trend in place is likely to
continue.
Bullish flags - Bullish flag patterns occur when a market makes
a very strong uptrend in prices, followed by a pause or sideways to
lower trading for a few price bars, and then the market resumes a
strong price uptrend. The countertrend move against the main trend
usually lasts just a few days. Sometimes the initial surge off a
bottom looks like a flagpole and can be used as a measurement
device, adding the length of the flagpole to the point where prices
break out above the flag to project a price target.
Markets typically fluctuate between periods of
high volatility and periods of low volatility, and that is how flag
patterns are formed as the market seems to take a breather to
reassess the situation before resuming its upward climb.
Source:
VantagePoint Intermarket Analysis Software
Bearish flags
- Bearish flag patterns are formed when a market
makes a strong price downtrend followed by a pause or sideways to
higher trading for a few price bars, and then a resumption of the
strong price downtrend. As with a bullish flag, the congestion area
that forms is a period when the market consolidates and reassesses
what it has done before returning to its downward trek.
Source:
VantagePoint Intermarket Analysis Software
Symmetrical
triangles or pennants - Several types of triangle-shaped patterns are
continuation patterns. Price action seems to tighten into a coil,
with highs and lows producing smaller ranges as prices move toward
the apex of the triangle. Technical odds favor a price breakout from
the triangle pattern in the direction of the most recent dominant
price trend – in the chart example above, down.
Descending
triangle - Adding to the succession of patterns suggesting
a continuation of the downtrend on the chart above is the descending
triangle. The market is able to find buying support at about the
same general level for several days in a row, but the highs for the
day get progressively lower as prices move toward the apex of the
triangle. As with other triangles, when buyers decide they can no
longer hold the price at the level on the horizontal side of the
triangle and the breakout eventually occurs, prices are expected to
move in the direction of the dominant trend.
Ascending
triangle - The ascending triangle reverses the appearance
of the descending triangle. Sellers keep the lid on price movement
at the horizontal side of the triangle but buyers keep pressing the
market higher, causing the lows to be higher each day until the
breakout above the horizontal line occurs. As the chart indicates,
it may take a few more days of trading as buyers and sellers retest
the breakout. As with other triangles, the expected move after the
breakout is in the direction of the dominant trend.
Source:
VantagePoint Intermarket Analysis Software
Cup and
saucer - Some analysts call this formation a cup and
handle, but the type of trading activity is the same. A market makes
a gradual descent, trades at a lower level for a while and then
makes a gradual ascent to form a rounding bottom – the saucer or the
cup, depending on the name you give this formation. After prices
reach the lip on the right side of the saucer (or cup), the market
runs into resistance from the lip on the left side and sets back for
a short time before moving back up to the lip level, forming the cup
(or handle). When prices do pick up enough momentum to break above
the lip level, they often do so with rather vigorous market action
on higher volume, sometimes leaving a gap at the start of what
becomes an extended uptrend.
Source:
VantagePoint Intermarket Analysis Software
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Charts for traders
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The basic tool: Trend lines
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Basic Chart Patterns:
Continuation
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Basic Chart Patterns:
Reversals
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More Chart Basics
Main Trading
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