Continuation Pattern Overview, Types, How To Trade

In a descending triangle, the swing highs are declining, forming a downward sloping trendline when they are connected. The swing lows reach similar levels, forming a horizontal trendline when connected. Another thing to be aware of is a small trending wave that is followed by a continuation pattern.

1. Traders find a high probability of a long setup at the retest of this neckline.
2. The hourly and 4-hour time frames are too short for most chart patterns to fully take shape and complete.
3. If you group too many items too closely, you’re going to end up with a noisy, crowded layout.
4. There are several continuation patterns that technical analysts use as signals that the price trend will continue.
5. Chart patterns should be used in conjunction with other analysis techniques such as volume, momentum indicators, and fundamentals for improved reliability.
6. But as soon as a breakout occurs, the prices start trending according to the initial trend (that occurred before the consolidation period) and out of the rectangle.

The upper trendline connects the highs, while the lower trendline connects the lows of the price bars. The Diamond Top is a reversal pattern that signals the transition of an uptrend into a downtrend. The diamond top pattern forms when the price of a stock rises to a new high and then declines, forming a peak. This peak is followed by a moderate rise and fall that forms the upper and lower sides of the diamond shape, indicating a potential reversal of the prior uptrend, as seen in the image below.

The three peaks will be distinct and at approximately the same price level, with some minor variation. The valleys between the peaks tend to be roughly at the same level as well. Visually it takes on the shape of an “M” or “W” with three crests of almost equal height, as in the image below.

Separating Lines

Continuity is a factor in flowing conveniently from primary to secondary navigation. In this video, author, designer and educator Mia Cinelli explains the importance of Gestalt principles in visual design and introduces a few of them, including continuity. Lastly, patterns are subjective and up to the interpretation of the analyst. One analyst may see a different pattern compared to another analyst, depending on how the pattern is drawn or the time frame. In this article, we will cover 6 practical ways to improve your trading performance in 2025. Sign up in seconds for free, access your platform, and start trading with ease.

In the example above, observe how higher highs are forming since the beginning of the consolidation. The price managed to take support from the support below, which was followed by a series of higher highs indicating the possibility of a breakout of the rectangle on the upper side. The bearish flag pattern is a reliable pattern when seen in a downtrend. It indicates that despite short pauses, the bearish momentum is likely to continue and prices are expected to keep moving lower after the flag breakdown.

Best Practices to Apply the Law of Continuity in UX Design

A bearish ‘Evening Star’ pattern indicates selling pressure emerging after an uptrend, signaling a potential top. ‘Engulfing’ patterns also suggest trend reversals – a bullish engulfing pattern is when a green candle totally engulfs the previous red candle. One notable example of a successful strategy using continuation patterns is the flag pattern trading strategy applied by many professional traders. A flag pattern typically appears after a strong price movement and is characterized by a small rectangle that slopes against the prevailing trend.

Elliott Wave Pattern

This principle suggests that elements that are aligned in a line or curve get perceived as being related—and so can guide users through content with ease. When it’s at work, it improves navigation and coherence across various screen sizes—something that’s vital for responsive design. In a mobile-first approach, when designers prioritize simplicity and continuity, they make sure that content scales seamlessly from smaller to bigger screens. So, tips include to use consistent alignment and directional cues—to lead continuation patterns the eye—and to design with scalability in mind to accommodate different devices. This doesn’t just enhance the usability—it boosts aesthetic appeal, too—so making apps more intuitive and engaging. To navigate these limitations, it’s important for designers to complement the Gestalt law of continuity with other principles—such as proximity and similarity.

It is also quite possible that, once we have drawn the pattern on our charts, the bounds may be slightly penetrated, but a full breakout does not occur. This is called a false breakout and could occur multiple times before the pattern is actually broken and a continuation or a reversal occurs. Rectangles, due to their popularity and easy visibility, are highly susceptible to false breakouts. Common mistakes include misidentifying patterns, ignoring volume analysis, entering trades before the pattern is confirmed, and failing to set proper stop-loss levels. Traders should also be cautious of patterns forming in choppy or sideways markets.

The bull pennant is very similar to the bull flag in shape and has the same market prediction. Milan Cutkovic has over eight years of experience in trading and market analysis across forex, indices, commodities, and stocks. An accumulation pattern is the opposite – a reversal that occurs at market bottoms – with the instrument being traded more actively bought than sold. A distribution pattern is a reversal that occurs at market tops, where the instrument that is being traded becomes more eagerly sold than bought. A stop loss is placed below the low of the pattern since the breakout was on the upside.

They employ statistical and mathematical techniques, analyzing variables like price, volume, and time intervals to accurately recognize these formations. One popular method for pattern recognition is the use of moving averages and trendlines, which help in identifying support and resistance levels integral to pattern formation. Flag patterns are continuation chart patterns that form in the financial markets and they include the bull flag pattern and the bear flag pattern. A bullish ‘Morning Star’ pattern shows strong buying resuming after a downtrend, signaling a potential bottom.

1. This approach doesn’t just clarify the product’s structure and hierarchy—it gives its aesthetic appeal a boost, too, something that leads to a more cohesive and user-friendly interface.
2. These patterns signal a high probability that the existing trend, whether bullish or bearish, will resume once the pattern is completed.
3. It is also quite possible that, once we have drawn the pattern on our charts, the bounds may be slightly penetrated, but a full breakout does not occur.
4. That is, they find what they see conforms naturally to expected principles such as continuity.
5. The pattern is complete when the price breaks out above the upper trendline resistance or below the lower trendline support.

For bullish island reversals, as in the example above, it consists of a gap down followed by a consolidation known as an island. Price gaps up and closes above the previous gap down, indicating an aggressive shift of momentum from bearish to bullish sentiment. Such patterns are traded aggressively at the close of the gap up candle, assuming that the trend is likely to continue on the upside without any further consolidation. The psychology behind this pattern is that after an uptrend, there is a period of indecision where buyers and sellers are evenly matched. This balance between supply and demand results in the price trading sideways within the rectangle pattern. However, the buyers still remain in control overall during this consolidation period.

It is important to wait for a confirmed breakdown before shorting rather than anticipating the pattern completion. The position is sometimes exited if the price climbs back above the triple top zone and closes there. The flag represents a pause in the downtrend as some short-term traders take profits. However, overall sentiment remains bearish, and most traders anticipate lower prices after this brief consolidation. The inverted cup and handle is a bearish continuation pattern, although it can sometimes also signify a trend reversal.

Bearish Continuation Candlestick Patterns

You don’t have to draw such lines in your design – they may be metaphorical (visually and/or in writing). For example, you could fashion a line through the shape of the content or graphical elements. Thus, a payment process might use numbered steps to show continuation, or it might use a flow chart with arrows drawn, linking each step. Alternatively, you could use a “funnel” shape to show progress towards the end of the process.

Confirm the validity of a chart pattern by looking for a breakout or breakdown accompanied by a significant increase in volume. Additionally, using technical indicators like RSI, MACD, and moving averages can help verify the pattern’s reliability. Wait for the pattern to complete and confirm through a breakout or a breakdown. For instance, a head and shoulders pattern is only confirmed when the price breaks below the neckline. Start by identifying a potential continuation or reversal pattern on your charts. For example, if you spot a flag pattern on a daily chart, check the 4-hour or weekly charts for confirmation.