HOW TO IDENTIFY CONTINUATION CHART PATTERN

Spread the love

The continuation chart pattern indicates the continuation of the prior trend. They can be formed in an uptrend or downtrend.

TOPICS TO COVER

  1. Flag Chart Pattern
  2. Bullish Flag Pattern
  3. Bearish Flag Pattern
  4. Pennant Chart Pattern
  5. Bullish Pennant Pattern
  6. Bearish Pennant Pattern

FLAG CONTINUATION CHART PATTERN

WHAT IS FLAG CONTINUATION CHART PATTER?

Flag is one of the most popular chart patterns forms by the price action of the security occurs in all markets (equity, commodity, futures, etc) in a short time frame as they move in the opposite direction of the prevailing trend.

In this chart pattern price of the security consolidate between two parallel lines (either slopping upward or downward slightly). That’s why they indicate the continuation of the prevailing trend.

TYPES OF THE FLAG PATTERN

Flag pattern are of to types. They are—

(A) Bullish Flag Pattern;

(B) Bearish Flag Pattern;

CONTINUATION CHART PATTERN (1)

BULLISH FLAG PATTERN

DEFINITION

Bullish flag pattern also known as a rising flag pattern. They formed when the price of the security fluctuates between slightly downward sloping Support and Resistance line. Price of the security consolidates between two parallel lines.

Flag continuation chart pattern

Bullish Flag clearly has a bullish bias. There is a flag pole that is formed by a rapid increase in price in a very short period of time.

HOW TO IDENTIFY BULLISH FLAG PATTERN?

1. The preceding trend:

There should be a prior trend to form a chart pattern. A rising flag typically forms in shorter time frames. The pole of the flag is the continuation or (sometimes extension) of the preceding uptrend.

2. The consolidation Channel:

The price consolidates between slightly downward sloping support and resistance lines creating a downward channel-like structure. Between these two parallel line price consolidate. This consolidation of price is a minor retracement in the uptrend.

3.The volume pattern:

Volume generally increases when the pole of the rising flag pattern form. Then volume decreases at the consolidation phase. After the breakout of the resistance line when price resumes the preceding uptrend, the volume again increases.

4. Confirmation: Though the Rising flag is one of the most reliable chart patterns, wait for a confirmation (closing of a candle upside of the resistance line) before entering the market to avoid a false breakout. Price moves in the same direction of the breakout.

HOW TO TRADE BULLISH FLAG PATTERN?

After identifying a bullish flag continuation chart pattern, enter the market with a buy order (long entry) just above the break out of the upper resistance line. To avoid faulty breakout and confirmation wait for a candle to close above the resistance line.

Place your stop loss just below the most recent trough (lower support line) line.

To calculate the profit target at first measure the height of the flag pole at the onset of the pattern. Then extend the height from the entry point to the upward. This price level is your target.

ALSO READ: Bullish Flag Formation Signaling A Move Higher

BEARISH FLAG PATTERN

DEFINITION

bearish-flag-continuation chart pattern

Bearish flag pattern also known as Reverse flag pattern formed when the price of the security fluctuates between slightly upward sloping Support and Resistance line. Price of the security consolidates between two parallel lines.

Bearish Flag clearly has a Bearish bias. There is a flag pole that is formed by a rapid decrease in price in a very short period of time.

HOW TO IDENTIFY BEARISH FLAG PATTERN?

The reverse Flag is a very common continuation chart pattern and occurs (most of the time) in 5 waves (according to the Elliott Wave analysis). It clearly has a bearish bias. Some characteristics to identify reverse Flag pattern are—–

1. The preceding trend:

There should be a prior trend to form a chart pattern. A reverse flag typically forms in shorter time frames. The pole of the reverse flag is the continuation or (sometimes extension) of the preceding downtrend.

2. The consolidation Channel:

The price consolidates between slightly upward sloping support and resistance lines creating an upward channel-like structure. Between these two parallel line price consolidate. This consolidation of price is a minor retracement in the downtrend.

3.The volume pattern:

Volume generally increases when the pole of the reverse flag pattern form. Then volume remains the same at the consolidation phase. After the breakout of the support line when price resumes the preceding downtrend, the volume again increases.

4. Confirmation: Though the reverse flag is one of the most reliable chart patterns, wait for a confirmation (closing of a candle downside of the support line) before entering the market to avoid a false breakout. Price moves in the same direction of the breakout.

HOW TO TRADE BEARISH FLAG CONTINUATION CHART PATTERN?

After identifying a reverse (bearish) flag pattern, enter the market with a sell order (short entry) just above the break out of the lower support line. To avoid faulty breakout and confirmation wait for a candle to close below the support line.

Place your stop loss just above the most recent peak (upper resistance line) line.

To calculate the profit target at first measure the height of the reverse flag pole at the onset of the pattern. Then extend the height from the entry point to the downward. This price level is your target.

ALSO READ: Bear Flag Chart Pattern Strategy

PENNANT CONTINUATION CHART PATTERN

WHAT IS PENNANT CONTINUATION CHART PATTERN?

Same as Flag, Pennant is also one of the most popular chart pattern forms by the price action of the security occurs in all markets (equity, commodity, futures, etc) in a short time frame.

It moves in the opposite direction of the prevailing trend. However, this chart pattern price of the security consolidates between two converging trend lines.

Thus as the pattern develops the price trend to consolidate in a narrower trading range. In short, it indicates the continuation of the prevailing trend.

Types of pennant Chart pattern:

Pennant Pattern are of two types. They are—

(A) Bullish Pennant Pattern;

(B) Bearish Pennant Pattern;

BULLISH PENNANT PATTERN

DEFINITION

Bullish Pennant continuation chart pattern also known as Rising Pennant pattern formed when the price of the security fluctuates between downward sloping Resistance and upward sloping support line.

Pennant continuation chart pattern

The price of the security consolidates between a gradually narrower trading range. Bullish Pennant certainly has a bullish bias.

There is a pole that is formed by a rapid increase in price in a very short period of time (same as flag pattern).

HOW TO IDENTIFY BULLISH PENNANT PATTERN?

1. The preceding trend:

There should be a prior trend to form a chart pattern. A rising pennant typically forms in shorter time frames. The pole of the pennant pattern is the continuation or (sometimes extension) of the preceding uptrend.

2. The consolidation Channel:

The price consolidates between upward sloping support and downward slopping resistance line creating a gradually narrowing trading range. Between these two converging line price consolidate. This consolidation of price is a minor retracement in the uptrend.

3.The volume pattern:

Volume generally increases when the pole of the rising pennant pattern form. Then volume decreases at the consolidation phase. After the breakout of the resistance line when price resumes the preceding uptrend, the volume again increases.

4. Confirmation: Though Rising pennant is one of the most reliable chart patterns, wait for a confirmation (closing of a candle upside of the resistance line) before entering the market to avoid false breakout. Price moves in the same direction of the breakout.

HOW TO TRADE BULLISH PENNANT PATTERN?

Firstly, identify a bullish pennant pattern, enter the market with a buy order (long entry) just above the break out of the upper resistance line. Wait for a candle to close above the resistance line to clarify the faulty breakout.

Place your stop loss just below the most recent trough (lower support line) line.

To calculate the profit target at first measure the height of the pennant patternā€™s pole at the onset of the pattern. Then extend the height from the entry point to the upward. This price level is your target.

ALSO READ: Pennant

BEARISH PENNANT PATTERN

DEFINITION

Bearish Pennant pattern also known as Reverse Pennant pattern formed when the price of the security fluctuates between downward sloping Resistance and upward sloping support line.

bearish peanut

The price of the security consolidates between a gradually narrower trading range. Reverse Pennant clearly has a bearish bias. There is a pole that is formed by a rapid decrease in price in a very short period of time (same as flag pattern).

HOW TO IDENTIFY BEARISH PENNANT CONTINUATION CHART PATTERN?

1. The preceding trend:

There should be a prior trend to form a chart pattern. A reverse pennant typically forms in shorter time frames. The pole of the reverse pennant is the continuation or (sometimes extension) of the preceding downtrend.

2. The consolidation Channel:

The price consolidates between upward sloping support and downward slopping resistance line creating a gradually narrowing trading range. Between these two converging line price consolidate. This consolidation of price is a minor retracement in the prior downtrend.

3.The volume pattern:

Volume generally increases when the pole of the reverse pennant pattern form. Then volume remains the same at the consolidation phase. After the breakout of the support line when price resumes the preceding downtrend, the volume again increases.

4. Confirmation: Though reverse pennant is one of the most reliable chart patterns, wait for a confirmation (closing of a candle upside of the resistance line) before entering the market to avoid false breakout. Price moves in the same direction of the breakout.

HOW TO TRADE BEARISH PENNANT PATTERN?

Firstly, identify a reverse (bearish) pennant pattern, enter the market with a sell order (short entry) just above the break out of the lower support line. Wait for a candle to close below the support line to clarify the faulty breakout.

Place your stop loss just above the most recent peak (upper resistance line) line.

To calculate the profit target at first measure the height of the reverse pennant pole at the onset of the pattern. Then extend the height from the entry point to the downward. This price level is your target.

In conclusion, the continuation chart pattern indicates a continuation of the trend. What we discuss above are some of them. There are many more.

ALSO READ:

  1. REVERSAL CHART PATTERN
  2. HOW TO USE INDICATOR IN TECHNICAL ANALYSIS

Leave a Comment