Candlestick analysis patterns are trend continuation patterns. Descending triangle trend continuation pattern What are the trend continuation patterns
The most common trend continuation patterns are "flag" ("flag ") and " pennant " ("pennant These chart patterns are identified and analyzed on a bar “bar” price chart (Fig. 14.12).
"Flags" and "pennants" are formed only within the trend, they are a sign of a trend correction confirming its continuation ("the trend is accompanied by ups and downs"), and are formed as two parallel straight lines drawn above and below downtrend in an uptrend or rising in a downtrend daytime bars. The slope of the "flag" is always directed in the direction opposite to the main price movement.
Rice. 14.12. Graphic models "flag" and "pennant" on the chart of shares of OJSC "LUKoil"
It is noticed that after the completion of the correction (completion of the formation of the "flag" pattern), the subsequent rise or fall in prices will be at least equal to the average value of the bars in the pattern (numbers 1 and 2 in Fig. 14.12). This property of the "flag" is reflected by the saying "the flag always rises to the middle of the flagpole" and if the trend stops the emergence of "flag" or "pennant" patterns, then the investor is required to pay more attention as the strength of the trend is depleted. The duration of the formation of models is from four to 10-12 days.
Graphic model "triangle" are quite common, but identifying them requires certain skills. There are three types of triangles - symmetrical, ascending and descending. All of them refer to trend continuation patterns, and their identification on the price chart indicates the continuation of the trend in which they originated. The triangle pattern forms within the current trend and lasts two to six seven weeks. A schematic model of a symmetrical triangle forming on an uptrend is shown in Fig. 14.13.
As is obvious from Fig. 14.13, the formation of a symmetrical triangle begins with the peaks numbered 3 and 5 being lower than the previous peaks, and the bottoms are slowly rising. At first glance, such price behavior indicates the end of the uptrend, and only an analysis of this price model allows us to draw a more reasonable conclusion. To do this, two straight lines are drawn at four points of local extrema - two peaks 1 and 3 and two bases 2 and 4, the intersection point of which is called "vertex" ("apex"). These lines act as a support line (line 2-4) and a resistance line (line 1-3). To make the figure complete, a perpendicular (" base" – "base") to line 2-4. The result is a "symmetrical triangle lying on its side". The formed model covers the period of price consolidation, when, after a rapid rise or fall, market participants stop and evaluate their positions.
If in the interval from 1/3 to 1/4 of the height of the ascending symmetric triangle the price breaks the upper line 1–3, then the uptrend will continue, but if the breakdown does not occur, then the price will move to a sideways trend or even a trend reversal will occur. In this case, it is possible to estimate the minimum value further growth prices after the breakdown of the line 1–3. To do this, a perpendicular rises from the breakdown point h, equal to grounds. Its top will be the desired minimum value of the rise in prices. Another method allows you to identify the direction of price movement. For this, in our case, a line is drawn from point 2 in the direction of line 2–4. The corridor formed in this case is directed towards the price movement. The analysis of a symmetrical triangle formed on a downtrend is carried out in a similar way.
Let's consider the formation of a symmetrical triangle using the example of prices for shares of OJSC "LUKoil" (Fig. 14.14). In early May 2006, after a long rise, the company's shares began to fall sharply. Their fall stopped on May 22, and the same rapid rise began. As a result of subsequent price changes, a "symmetric triangle" pattern was formed (tops 2–4 and bottoms 1–3). The significant range of price fluctuations in the triangle led to the fact that the magnitude of the fall in prices after the completion of the formation of the pattern was also significant.
Rice. 14.13. Scheme of the graphical model "symmetric triangle"
Rice. 14.14. Symmetrical triangle on the price chart of OJSC "LUKoil", May-June 2006
ascending and "descending triangles". The name alone suggests that these patterns are formed on an uptrend and a downtrend, respectively. Although these triangles are a kind of symmetrical triangle, at the same time, with their help, unlike a symmetrical triangle, it is possible to quite accurately determine the development of a trend. The diagram of the ascending triangle is shown in Fig. 14.15.Rice. 14.15.
An ascending triangle is formed on an uptrend when the rise in prices temporarily stops. An ascending triangle is built, like a symmetrical one, along four points - two vertices (points 1 and 3 on the diagram) and two bases (points 2 and 4). At the same time, the upper line 1–3, which acts as a resistance line, is usually close to horizontal, and the perpendicular to line 2–4 dropped from peak 1 completes the formation of the "right triangle" pattern. The horizontality of the top line is due to the persisting high activity buyers, which ensures the subsequent rise in prices, therefore the ascending triangle is considered a "bullish" pattern.
The breakout by the closing price of the upper line of the triangle is considered to be a signal of completion of the pattern. In turn, a descending triangle is a mirror image of an ascending triangle in a falling market and is considered a bearish pattern. The formation period for both models is from 2 to 10 weeks.
Graphic model "expanding formation" or " expanding triangle " Is a price change model, conventionally referred to as triangles. It arises when two strong groups of "bulls" and "bears" are formed in the market, consisting largely of private investors, each of whom wants to turn the market in its own direction. The model is relatively rare and is characterized not by the convergence of the sides of the triangle, as described above, but by their divergence. In other words, this model describes the state of the market when "bulls" and "bears" begin to "swing" this market, increasing and decreasing prices in waves.
At the same time, the volume of trade also increases, i.e. the market becomes spontaneous. The pattern forms at the top of an uptrend. This is a bearish pattern as it ends in a trend reversal; a fall in the market (Fig. 14.16). The model consists of two or three consecutive vertices (in the diagram 1.3,
5) and two or three bases (2,4,6). The model formation period is 6-10 weeks.
Graphic model "diamond" or "rhombus". Sometimes referred to as a "diamond formation". The model consists of two triangles - an expanding one and the next symmetrical one (Fig. 14.17). It occurs at the top of the market and forms within 4-10 weeks. In the first half of the model, trade volumes consistently increase, and in the second, they decrease. This pattern is rarely formed and is considered complete when the price breaks the lower side of the symmetrical triangle.
Rice. 14.16. Expanding triangle or "expanding formation" diagram
Rice. 14.17. Diagram of the graphical model "diamond"
Graphic model "wedge" ("wedge ") can also be thought of as a type of triangle. It forms within an ongoing uptrend or downtrend and by its appearance confirms its continuation. The wedge forms within one to two months and is shaped like a symmetrical triangle, tilted in the opposite direction of the trend. A sharp downward angle is considered a "bullish" pattern, since it is formed on an uptrend and confirms its continuation (Fig. 14.18).
A wedge, like other trend continuation patterns, is a stage in the development of a trend after a rapid rise or fall, during which market participants assess the trend. Typically, the wedge extends from 2/3 to 3/4 of its length before the breakout.
Graphic model "rectangle" is a period in the development of a trend, after which the trend continues to move. The pattern is a chain of successive ups and downs with the same amplitude that occur during the development of a trend. When analyzing, the analyst draws straight lines along the tops and bottoms of the figure, often parallel, which gave the name to the graphical model. Another name for the rectangle is "price corridor". The resulting figure can be parallel to the abscissa axis of the graph or slightly tilted. Refers to medium-term patterns that form within one to two months (Fig. 14.19).
Rice. 14.18. Scheme of the graphical model "wedge"
Rice. 14.19. Diagram of the "rectangle" graphical model on a downtrend
Rectangles of various lengths are formed on both uptrends and downtrends. Their occurrence is a consequence of the market struggle between two equal in strength groups of "bulls" and "bears". As a rule, after the completion of this struggle, the market continues to move in the direction of the previous trend. Based on the amplitude of price fluctuations h in the rectangle, you can estimate the minimum value of the subsequent price change after the breakout. To do this, as shown in Fig. 14.19, the height of the rectangle h transferred to the breakout point of the lower line of the rectangle, which acts as a resistance line on a downtrend.
There is another way to measure the magnitude of future price changes after a breakout. It is used in case of excessively long sideways price movement in a rectangle. The length of the rectangle is measured and transported to the breakout point in the form of the price change height. In this case, it is assumed that the protracted struggle between "bulls" and "bears" leads to the accumulation of significant market energy, expressed in a strong leap after a prolonged pause (Fig. 14.20).
Rice. 14.20. Scheme of price changes after the completion of the "rectangle" chart pattern on a downtrend
If you studied Forex market over a period of time, then you have definitely heard about chart patterns and their meanings in technical analysis.
If you would like to learn more about chart patterns and their corresponding trading signals, then this article will give you a starting point from which to increase your knowledge of classic chart pattern trading.
Today we will go through the most important chart patterns in Forex and discuss their potential.
What are graphic models
Forex charting patterns are price images on a price chart that have a higher probability of completing in a particular direction. These trading patterns provide significant trading clues that we will use to technical analysis prices in the process of making trading decisions. Each chart has the potential to push the price into a new move. Thus, traders tend to identify chart patterns in order to take advantage of the upcoming price swings.
Type of graphic models
Forex trading patterns are divided into groups depending on the potential price direction of the pattern. There are three main types of chart patterns classified in Forex technical charts.
Continuation patterns
A trend continuation pattern appears when price is trending. If you notice a continuation pattern during a trend, it means that the price is correcting. Thus, the continuation patterns show that a new step in the same direction is likely to be taken. Some of the more popular continuation patterns are pennant, rectangle, and correction wedges.
Reversal patterns
Trend reversal patterns appear at the end of a trend. If you see a reversal pattern forming when price is trending, in most cases the price movement will reverse completely after the pattern is seized. In other words, reversal patterns show that the current trend is coming to an end! The most popular reversal patterns are: double (or triple) top / bottom, head and shoulders, reversal wedges, ascending / descending triangle.
Neutral models
These are chart patterns that are likely to push the price towards a new move, but in an unknown direction. Neutral patterns can appear during a trend or flat. You might be wondering what the value might be in neutral patterns, since we don't know the likely direction. But in fact, defining a neutral pattern is valuable because you can still trade the past trend. When price confirms a neutral pattern, you can enter a position in the direction of the breakout!
Kinds of continuation patterns
Graphical figure - Pennant
A pennant is a corrective price pattern that appears during a trend. In shape, it resembles a symmetrical triangle, since both sides of it are connected by the line of support and resistance. The difference is that pennants usually occur during the trend phase, while triangles can be formed during both trends (trend) and general periods of consolidation. Pennants can be bearish or bullish depending on the direction of the trend. When a pennant occurs during a trend, it has the potential to push price in the direction of the overall trend. The expected move is usually equal to its move, that is, the target from the breakout point is equal to the size of the pennant itself. Below is an illustration of Pennants:
The green lines indicate the size of the pennant and measure the expected price movement, which equals the size of the pennant.
When trading a pennant, you must open your position after the price closes the candle outside the pennant, indicating confirmation of the pattern. At the same time, a stop loss should be placed directly at the opposite level of the pennant.
Graphic shape - rectangle
The formation of a rectangle pattern is a continuation of a trend that resembles price consolidation within horizontal support and resistance levels. During a trend, when price starts to move towards the rectangle formation, another deviating move is likely to occur once price eventually exits the rectangle formation. This movement is likely to be as large as the height of the rectangle. Rectangles can be bearish or bullish depending on the direction of the trend. Take a look at the picture below to understand the shape of a rectangle:
When trading rectangles, you must place a stop loss at the opposite edge of its formation. Note that this trading pattern is similar to a pennant, the difference is that the rectangle is formed within the same price zone.
Correction wedge
We have a rising wedge when price closes with high tops and even higher bottoms. A falling wedge is when price closes with a low bottom and even lower tops. Wedges are very interesting chart patterns. The reason is that wedges can be a continuation or trend reversal formation. Thus, I decided to distinguish two types of wedges in order to provide a more detailed classification - Thus, wedges are of two types: correction wedges and reversal wedges. There is no difference in shaping between the two types of wedges. They look exactly the same - for example, regular rising wedge and regular falling wedge. The nature of the corrective / reversal is determined by the previous price movement.
Corrective wedges form in the opposite direction of the trend. Thus, if you see an upward trend on your chart and a corrective falling wedge is formed, it means that the trend may continue. The same can be said about the rising wedge, just the opposite. If a corrective wedge occurs during a trend, it has the potential to push price into another trending move equal to the size of the wedge itself. Below is a picture of the wedge formation:
When you trade corrective wedges, your stop loss should be placed just outside of the side opposite to the breakout.
Types of graphical reversal patterns
Reversal wedge
I'll start with reversal wedges as the previous chart patterns we discussed were corrective wedges. Thus, you will see the difference between these two shapes.
The reversal wedges look exactly the same as the correction wedges. The difference, however, is in the relationship between the wedge and the direction of the trend.
Each rising wedge is bearish. This means that the rising wedge is reversing the bullish trend and continuing in the bearish direction. At the same time, each falling wedge is bullish. Thus, falling wedges reverse the bearish trend and continue in the bullish direction.
Take a look at the image below:
You see? The reversal wedges are exactly the same in appearance as the correction wedges. The difference is where they appear relative to the trend. When a reversal wedge occurs at the end of a trend, it has the potential to push price into the opposite movement, equal to the wedge itself. When trading reversal wedges, you should place a stop order just above the level that is opposite the breakout of the wedge.
Models: double top and double bottom / triple top and triple bottom
This is another example of price reversal patterns. We can see a double top pattern after an uptrend has created two tops at roughly the same level. Conversely, we have a double bottom pattern where, after a downtrend, the price creates two bottoms at about the same level. It is exactly the same with the triple top and triple bottom. The difference, however, is that there are three tops and bottoms, not two. This is what these formations look like:
Green lines indicate the size of the formation and its corresponding potential. For sizing, we take the highest top and lowest bottom of the formation. When we confirm the authenticity of these trading patterns, we expect price movement equal to the size of the formation.
But how do we confirm formation? When we trade double and triple tops and bottoms, we should look at the signal formation line. A double top signal line is a horizontal line that runs through the bottom between two tops. The Double Bottom Signal Line is a horizontal line that runs through the top, located between the two bottoms. It's almost the same with triple tops and bottoms. This time, the signal line goes through the lowest bottom for a triple top formation and the highest top for a triple bottom formation. When the closing price of the candlestick is outside the signal line, we have confirmation of the pattern. You can then open a position and place a stop loss at about half the size of the pattern.
Model - Head and Shoulders
It is one of the most reliable chart patterns in the technical analyst's arsenal. The head and shoulders are a reversal formation and indicate a reversal of the bullish trend. At the same time, this pattern has an opposite pattern - an inverted (or reverse) head and shoulders. An inverted head and shoulders typically appear after a bearish trend and call for a downtrend. Below you will find examples of this model:
As you can see, the shaping of the head and shoulders really looks like a head with two shoulders. After an uptrend, price creates a top, but with a bottom corrected. Then it creates a second higher top, and then it forms a third bottom, and then fixes it by moving to the top. It's the same with an inverted head and shoulders, but instead of an uptrend, we have a downtrend and instead of a top, price creates a bottom, as shown in the picture above.
The bases that form the head are two points that create the signal formation line. This signal line is called the neck line. When the price closes the candlestick outside the neckline, the head and shoulder formation is confirmed and we can enter the market with the appropriate position. This position should be short in the case of the head and shoulders and long in the case of an inverted head and shoulders. Your stop loss should be placed just above the last shoulder of the formation.
Models: Ascending triangle / Descending triangle
An ascending triangle has tops that lie on the same horizontal line and has higher bottoms. The Descending Triangle has the opposite. Although many people consider these chart patterns to be neutral, they have a chance to reverse the trend of the price movement. Thus, I use them on a chart with trend reversal patterns. Take a look at the image below for a visual perception of the picture of these triangles:
As you can see, the ascending and descending triangles are very similar to the corrective and reversal wedges. The difference is that corrective wedges have higher tops and reversal wedges have lower bottoms, while an ascending triangle has horizontal tops and a descending triangle has horizontal bottoms. When the ascending / descending triangle is confirmed, we expect the price reversal dynamics equal to the size of the formation. This is shown in the image above with green lines. The stop loss should be placed just outside the horizontal level of the triangle.
Neutral Chart Pattern - Symmetrical Triangle
Symmetrical triangles have two sides that are approximately the same size. Since both sides of the triangle are the same, this creates a technical force equivalence that creates a neutral formation pattern. The figure below shows what a symmetrical triangle looks like:
When a symmetrical triangle occurs on a chart, we expect the price to move in an amount equal to the size of the formation. However, the direction of the breakout is usually unknown due to the equivalence of the two sides of the triangle. Thus, gj Price Action traders tend to wait for breakouts to confirm potential trading direction. If you are trading symmetrical triangles, you should place your stop loss just behind the opposite end of the sectional side.
Trading with models
Now that I've introduced you to the most important patterns for reading price, it's time to show you an example of patterns in action on a chart. Take a look at the image below:
This is the daily chart of the EUR / USD pair from Oct 29, 2012 to Oct 12, 2013. Our chart analysis reveals seven successful chart patterns. The green lines show where we could open our positions. The red lines show where stop losses should be placed.
First, we start with a double bottom formation. The green line is the signal line of the pattern and the moment of long-term entry. The red line is the stop loss, which is located approximately in the middle of the pattern. The EUR / USD pair rose 187 pips in 5 days.
The rise in price subsequently turns into a rising wedge. Since the wedge is formed after the price increase, it has the character of a reversal. The lower wedge level is interrupted in the bearish direction and will be short potential on EUR / USD. The trade may be closed after two days when the price reaches the size of the model. The profit gain would be 190 pips.
The price starts a new rally, which leads us to a symmetrical triangle. See how the sides are roughly the same size and at the same angle. Since the symmetrical triangle is neutral, we are waiting for a breakout. And here it happens in a bearish direction. We could go short and place a stop loss just above the pattern. On the same day, the price completes the pattern size - +137 pips on the same day.
The decline after the symmetrical triangle brings us to the first bottom of the double bottom formation. When we spot a second bottom, we place a signal line above the top bottoms of the two bottoms. The price breaks the signal line and the long position is confirmed. We will place our stop loss in the middle of the pattern. In this particular case, we could stay in the market for twice the size of the forming model!
Shortly thereafter, the price begins to consolidate. Notice how the consolidation resembles a rectangle? Indeed! It's a bullish rectangle! The price breaks through the upper level of the rectangle and a buy setting for the EUR / USD pair takes place. We could have stayed in this position longer than the potential of the rectangle suggests, because we did not get bearish behavior after the bullish potential was fulfilled. The price starts to fluctuate and we see a bearish trend on the lower timeframe (H4). In addition, on our daily chart, the Doji candlestick closes the price, which has a potential reversal character.
Suddenly, the price finally starts to fall.
Do you see something? Take a look at the black line for an example. The last double bottom, followed by a bullish rectangle, creates the head and shoulders. The next decline thereafter creates a second shoulder. This is a good head and shoulder formation. In order to confirm the pattern, we need a price that breaks and closes the price outside of the neckline formation. This way we connect the two bases that create the head and we get our neck line. The opportunity to sell EUR / USD occurs immediately after the price has broken the neckline. We could sell EUR / USD and place a stop loss just above the last shoulder of the pattern, as shown in the image. We want to stay short until price completes the size of the pattern.
Then a corrective rising wedge appears. And you are faced with options: close the head and shoulders position, and then open another short position to trade the rising wedge. Another option is to stay in the head and shoulder position in a short position until the wedge is completed. In both cases, you will benefit from a solid head and shoulder model.
Conclusion
Forex charting patterns are technical patterns on a chart that are a clue to us in possible price movements.
Graphic patterns are classified into three types:
- Continuation patterns
- Reversal patterns
- Neutral models
Some of the most important trend continuation patterns are:
- Pennants
- Rectangles
- Correction wedges
Some of the most important trend reversal patterns are:
- Double / Triple Top / Bottom
- Reversal wedge
- Ascending and descending triangles
One of the most popular neutral shapes is the Symmetrical Triangle.
All of these chart patterns tend to move in price equal to the size of the pattern itself.
You are now on page 2 of the Shapes Patterns Walkthrough. Thanks to him, you will quickly start trading with a good profit.
In different literature you can find a large number of figures that describe the market in one way or another and promise a quick and very profitable trade... In this article, we will look at the most profitable ones that will help you in your trading.
All shapes (graphic models or patterns) can be divided into two groups:
- Reversal figures;
Today we will consider only the trend continuation patterns.
Trend continuation patterns say that there is a pause in the market, or at the moment the trend has developed too quickly and it is time to take a break to gain strength for further movement. Want to learn more about trend patterns?
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In this thread, we want to talk about Forex trend continuation patterns. Traders noticed certain patterns, after which there was either a reversal or continuation of the trend. These laws were subsequently successfully applied on the currency exchange and significantly improved.
Forex trend continuation patterns remind us of mathematical forms, but have little to do with them. The trading instrument under consideration is based on psychological aspects, which we will talk about today.
Forex differs from other exchanges that trade other goods, therefore, trend continuation patterns have their own characteristics. Although regardless of the market, the Japanese candlestick combination is based on similar psychological principles.
Let's start with a rectangle. Note that this form appears quite often and is a strong signal to hold a profitable position, close an unprofitable one, or open a new one, counting on the subsequent movement. Rectangle, as a trend continuation pattern, has proven itself on the positive side and is worked out in the overwhelming majority of cases with a high degree of probability.
The general rule for all models is the higher timeframe rule. The higher the time interval, the more likely the scenario will come true. This is due to the psychological characteristics of the behavior of the players involved in the trade.
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To work out a rectangle, you need to take wait and see attitude watching the market. After waiting for a strong driver to appear, we see how the currency starts to move confidently. If there is growth, then there are participants who consider the value of the asset attractive for purchase and expect further strengthening of the rate. At this point, demand exceeds supply, and traders continue to buy the pair.
Forex trend continuation patterns appear on the chart after participants' activity fades away. Such moments happen all the time, and most of the stock market activity consists of them. If the cost has fallen to a local minimum and is not going to grow, then this is a harbinger of the formation of a trend continuation pattern.
As a rule, a pronounced movement is characterized by the appearance of large Japanese candlesticks, after which a series of small ones are formed. The ideal situation is when between the extremes that indicate the beginning and end of the impulse, when drawing the Fibonacci lines, the value does not rise or fall above or below the levels 23.6 and 78.6.
Depending on the timeframe, it may take more than a dozen candles for the development of the Forex trend continuation rectangle. The price is squeezed in a narrow range, and the trading volumes do not allow the rate to be pulled out of the corridor... Just like you, many participants observe the market. The longer the flat lasts, the more players understand that the pair will not go in the opposite direction.
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This period of time is suitable for buying a lot in the direction of the global movement. When there is sufficient interest in a financial asset, it will go to new extremes. The trend continuation pattern informs us that at this stage there are no investors willing to enter against the price movement... On the contrary, most players are looking for the best opportunity to trade in the direction of the trend line. At such a moment, attempts to decline in a bull market should be perceived as a favorable moment for entering into a buy trade. For bears, the situation is the opposite, growth is considered for selling.
The longer the rest period lasts, without significant fluctuations, the more the course will subsequently change. Forex Academy helps students to wait for the right moment, and also warns against working against the trend. One of the most common mistakes is work against the market... Beginners perceive a pause as a place for a trend reversal. Study trend continuation patterns and don't make mistakes.
Having accumulated enough experience, you can feel the mood of the exchange without additional indicators and Forex advisors. We will try to help you and save your time by talking about the opportunities for successful trading based on graphical analysis.
By by and large, all Forex trend continuation patterns are different variations of the same psychological feature of a financial institution. Although depending on the model, the mental aspects may differ. Classical technical analysis, along with the rectangle, classifies the torch, pennant, wedge, flag as trend-following patterns. In our opinion, the last and most reliable pattern is the rectangle. All other trend continuation patterns are more likely to be considered forms of uncertainty.
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Torch, pennant, flag and wedge are modifications of the Forex triangle. Realities suggest that the resolution of the triangle is equally probable in both directions... Making a historical analysis, we can come to the conclusion that in the past, such trend continuation patterns in the Forex market as triangles, in most cases performed the assigned function. Today, the interests of market makers force the models to be implemented, contrary to the expected scenario.
I propose to consider the triangles in more detail, but remember about the danger they pose. Appearance on the chart symmetrical triangle talks about the emerging uncertainties among traders... The pair bounces alternately from the upper and lower boundaries forming a trend continuation pattern. In the scenario described, the course is like a spring; when it contracts, it accumulates force. When the triangle is resolved, all participants occupy unified position... Those who opened in the opposite direction close losing Forex orders and enter with the trend, which gives an additional impetus to the price movement. Do not forget that in modern conditions a reversal after a triangle is quite common.
Even more often, a reversal occurs after a Forex wedge or pennant trend continuation pattern. In order not to fall into the trap when analyzing these patterns, we recommend keeping track of volumes... A rise in the rate on small volumes should make you worried. But the best warning about the danger is the divergence displayed on the Forex indicators.
Consider the situation, a pennant appears at the top, we observe a series of successive peaks, each of which is higher than the previous one, as well as a series of dips, each higher than the previous one, the lines of support and resistance are narrowing. If at this moment there is a divergence on the indicators, most likely the trend has exhausted itself and it is necessary to wait for the breakdown of the lower support line, followed by a significant correction... If divergences are not observed, most likely you have witnessed such a strong trend that the pair continues to grow even during a correction.
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Forex trend continuation pattern formation Flag informs about rollback after significant growth. Here in a bull market, we see a series of successive highs and lows, each lower than the last. We assume that a breakout of the resistance line will occur, so we place a pending buy order near the lower border of the channel. The use of Fibonacci lines will improve the quality of the entry. If the pair drops below 50% retracement, the scenario is canceled.
It is vital for any trader to have an understanding of indicators, but it is not necessary to use them to generate income. It is enough to know the main patterns of the Forex trend continuation in order to enter into successful contracts... Having seen them on the chart, you will be able to predict the behavior of the currency with a reasonable degree of probability. But not everything is so simple.
Triangle, classical school technical analysis is recognized as a trend continuation pattern. It all depends on how events will develop. Exit economic statistics, or unexpected comments from officials can turn a triangle into a reversal pattern. In theory, any shape should be recognized as a figure of uncertainty. If the rate continues to move in a given direction, it will be called a trend continuation pattern. If it reverses, it will be a Price Action reversal pattern. Behind the beautiful pictures, with romantic names, there is the behavior of the subjects of trade, which determine the value of the asset.
The ability to see and use Forex trend continuation patterns in practice are essential qualities of any modern investor. Together with signals from indicators, support and resistance zones, Fibonacci levels and other useful tools, you can read the current financial positioning and make the right trading decisions.
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We are not claiming that patterns will help you open 100 successful trades in a row. Once in difficult situation when the indicators do not provide reliable information about the events taking place, the trend continuation patterns in the Forex market will help keep profitable position and increase the income from the transaction.
The topic under consideration is not difficult, but for the correct interpretation of the data obtained, you will need investment experience and hours of market observation. Forex Academy will try to reduce the time spent and provide information about the most relevant trend continuation patterns.
And today we will talk about the trend continuation model, in the previous article I spoke in detail about, who did not read, read!
Technical analysis
solves two important issues with the help: firstly, it allows you to track current situation c, consider changes in the market retrospectively.
However, the more important possibility is to forecast the appearance of a trend, forecast, forecast (change of directions).
In this regard, the so-called continuation patterns are important. They received this name due to the fact that they entail certain changes to.
Wherein this information it is optimal to use it as a forecast, which will make it possible to more accurately determine the nearest benchmarks in trading activity.
General aspects of Japanese candlestick methodology
Japanese candlesticks are an interval and dynamic way of reflecting quotes and trend direction. This is a practical and promising method, which bears similarities to the Western European technique that uses bars.
However, candles are distinguished from them by the presence of shadows, which provides more flexible opportunities for drawing graphical figures.
Moreover, their variety allows you to clearly see the internal (provoked by investors) changes in the market. Therefore, Forex patterns, that is, continuation patterns, should be treated as carefully as possible.
There are several types of technical analysis using patterns. The first is the so-called strategy.
It is very practical for fast markets, therefore, it is worth taking into account instant bar changes. It is the presence of typical types of candlestick patterns that allow you to get income from 20 to 70 positions per.
At the same time, these models are optimally suited for intra-week trading, however, in this case, it is worth choosing an hourly price display chart.
The second strategy, which is possible due to the presence of candlestick analysis, is "momentum". This direction is even narrower than SWING, and therefore requires maximum concentration.
Typical shapes help a lot in this, because they allow you to filter out false trading signals and catch the real prerequisites for opening a downtrend or uptrend.
The popularizer of these methods was (follow the link and download his book for free), who was one of the first in the West to use Japanese candlesticks.
They were subsequently assigned associative names that allow them to be recognized instantly. Therefore, as a basis for it is worth studying:
Works by Nisson and Morris, which you can download for free from my blog:
- Modern concepts of candlestick analysis
- Analysis of candle shadows and bodies
- Continuation shapes
- False figure types and their influence on the trend
The writings of Morris and Neeson have endured over time. These books are already about 20 years old, and at the moment they are still one of the most understandable and adapted for novice traders and experienced technical analysts.
Types of continuation figures
Triangles are considered to be the main types of trend continuation patterns (read the article -). But forex triangles can also be figures of uncertainty, follow the link and find out about this type of figure and watch the video
Watch
They can be drawn using arbitrary lines - tools or using a program that itself defines these shapes.
It is very simple to draw triangles on the quotes chart: you need to draw arbitrary lines over the upper and lower values. In this case, the configuration of the triangles becomes clear.
Based on this, it is customary to divide them into:
- Symmetrical,
- Divergent,
- Descending,
- Ascending triangles.
See about the types of triangles
Watch a video about the types of Forex triangles:
General rules for constructing triangles
Building triangles is easy, but not everyone does it right. Therefore, it is important to indicate several principles of construction that help not to be mistaken in conclusions regarding the trade.
The triangle is constructed from five Japanese candles or five broken lines for graphical display of quotes. For example, three of them are in a downward direction, and two in an upward direction. A triangle is built on the basis of them.
The price behavior at the entrance to the triangle determines the likelihood of price direction: if the price enters from above, the trade is likely to be downtrend. If the price approaches the triangle from below, then the trade will be upward.
When the price moves sideways, triangles are generally not drawn. It is rarely possible to build a diverging triangle, but it will be defective and will not adequately reflect the direction of the upcoming movement.
Here's a look at all types of triangles of this type:
Descending triangle - starting with an uptrend:
Forex candlestick patterns - descending triangle starting with an uptrend
Descending triangle - starting with a downtrend:
Descending triangle - starting with a downtrend
See About Continuation Models
Watch a video that complements the topic: Forex - continuation patterns.
They are sometimes called failures. They appear during the period of temporary suspension of the current trend, after which it resumes. The ability to identify trend continuation patterns on price charts will allow you to trade in the direction of the current trend and find market entry points with high profit potential.
Types of trend continuation patterns
Triangle
This is the most common trend continuation pattern. There are four types of triangles:
- ascending
- descending
- symmetric
- divergent
The picture below on the left shows an example of an ascending triangle that is formed using two trend lines. One of them is horizontal. The second is directed up and to the right. The trend enters the ascending triangle from below. After bouncing three times from each side of the triangle, the price breaks the horizontal line and moves up.
A descending triangle is shown on the right side of the figure. The trend enters it from above. After bouncing three times from each side of the triangle, the price breaks the horizontal line and moves further down.
If the price enters the ascending triangle from below, then after breaking through the horizontal line forming the triangle, we should expect the uptrend to continue.
If the price enters the descending triangle from above, then after breaking through the horizontal line forming the triangle, we should expect a continuation of the downtrend.
The symmetrical triangle is quite common in the forex market. This pattern, shown in the figure below, is called an uncertainty figure, because after the reduction in the amplitude of fluctuations inside the triangle, the price can go in any direction.
It often happens that in the presence of a strong trend, the price breaks through the boundaries of the triangle in the direction of the current trend.
Many traders, when a symmetrical triangle appears, place pending buy and sell orders (an example was shown in the picture above) and wait to see which one will work.
If the price enters the symmetrical triangle from below, then the trend is likely to be upward. If from above, then descending.
Expanding triangle shown in the figure below is a mirror image of the previous trend continuation pattern (symmetrical triangle).
It is formed due to the expanding amplitude of the price movement. To form a triangle, you need to have at least five waves. All the rules described for the previous model apply here as well. The breakout of the divergent triangle often occurs in the direction of the previous trend.
Flag
The figure below shows a trend continuation pattern called a flag.
If such a figure appears on the market on an uptrend, then it is worth entering the market after breaking the resistance line, making a purchase. If on a downtrend, then after the breakout of the support line, making a sell.
Pennant
The figure below shows a trend continuation pattern - a pennant. It resembles a converging symmetrical triangle.
The peculiarity of the pennant is that most often this figure appears at shorter intervals of time than the triangle. Accordingly, the pennant indicates the continuation of the trend on shorter time frames than the triangle. All the rules that are true for triangles are also true for the pennant.
On what time intervals should we look for the listed trend continuation patterns? It all depends on your trading style. If you are an intraday trading, then look for the listed patterns on 15 or 30 minute charts. And if trading is carried out on daily candles, then look at them for the appearance of the continuation patterns described in this article.
Read also about the trend reversal patterns described in detail in.