So now that we’ve had a look at some of the most important price action reversal patterns, I think it’s time to move on and spend a little bit of time looking at the most important price action continuation patterns you can expect to see form in the market. Price action continuation patterns are basically the opposite of the reversal patterns we have just looked at. Instead of signalling to us a reversal is going to take place, their appearance is a sign the current trend/movement is probably going to continue.
The Rising And Falling Wedge Continuation
Whilst the rising and falling wedges are most often found to be price action reversal patterns, they can also be continuation patterns if they happen to form during downtrends and up-trends respectively.
Here’s a falling wedge pattern which formed during a retracement that was taking place during an up-swing on EUR/USD.
The reversal formation of the falling wedge will always form at the end of downtrends or down-moves, but the continuation variation will only form during up-trends and up-moves. You can see the wedge forms in the same way as it would if it was signalling a reversal at the end of a downtrend. The swings contract as the pattern progresses until an upside breakout occurs, pushing the market above the swing highs which had formed from the market hitting the sharper downside slope of the pattern.
Here we have an image of rising wedge pattern which formed during a downmove that occurred on the 1 hour chart of USD/JPY.
In contrast to what we see with the falling wedge pattern, the rising wedge only forms as a continuation pattern during downtrends. If you see one form during an up-trend, it’s not a continuation pattern and is instead the reversal pattern we just looked at in the previous section.
The vast majority of the wedge continuation patterns you’ll see form in the market will form as retracements during up or down moves. Their formation will take place during the whole duration of the retracement, and the breakout seen at the end of each pattern will usually signal an end to not only the patterns formation, but the entire retracement itself.
The Bullish And Bearish Flag Pattern
Bullish and bearish flags (sometimes pronounced bull flag and bear flag) are two more really common price action continuation patterns you’ll see forming in the market. They get their name from the way the structure of the pattern resembles that of flag mounted on top of a pole.
In the image above you can see an example of a bullish flag pattern that formed on AUD/USD.
You can see the pattern is basically constructed off of two points. The first point is the sharp bullish move higher which takes place right before retracement begins (this is refereed to as being the pole of the flag) and the second point is the retracement itself. The retracement is the flag part of the pattern and should always terminate before reaching the 50% fibonacci retracement level of the downswing which creates the flag pole. If you see the market retrace beyond the 50% level it’s usually a sign the pattern is changing from a flag into something else.
This image shows a bearish flag pattern which formed on the 1 hour chart EUR/USD.
The bearish flag is basically an upside down version of the bullish flag. Both patterns form in the exact same way and they both abide by the same rules regarding their formation i.e if the market moves beyond the 50% level of the flag pole swing the probability of pattern remaining a flag decreases dramatically.
Both bull flags and bear flags form frequently in the market and are often quite a reliable signal the current movement is going to continue. Usually the point where a flag will terminate is the same point as where a supply or demand zone has formed. So if you want to try to get an entry into a flag pattern trade, it’s best to do so around the point where a nearby supply or demand zone has formed, as this is point where the flag is likely to end and cause the prior trend/movement to resume.
The Descending And Descending Triangle Patterns
The last couple of continuation patterns we’re going to have a look at are the ascending triangle and the descending triangle. Triangle patterns are very much like the rising and falling wedge patterns we looked at earlier. They form in the same way and have a similar swing structure to one another. The main difference between the two, is that the two triangle patterns always form with one straight edge that acts as a resistance or support level until the market breaks out of the pattern and continues to move in the direction of the prior trend.
Here’s what an ascending triangle pattern looks like on a chart.
The ascending triangle is the bullish variant of the two triangle patterns. It only forms during up-tends or up-swings and is always seen as being a signal the current move is going to continue. The straight edge of the ascending triangle is a support level, and this level stops the market from moving lower during the time the pattern is forming.
In this image you can see a descending triangle pattern which formed on the 1 hour chart of AUD/USD.
The descending triangle is the bearish version of the triangle pattern and it’s formation is a sign the current down-move/downtrend is likely going to continue. The only difference it has with the ascending triangle is that it’s straight edge is a resistance level which stops prices from rising higher during the formation of the pattern in the market.
The ascending and descending triangle patterns are good to know but not that great for trading, due to the way a few false breakouts will usually take place before the real breakout occurs and causes the market to move in the direction it was moving in prior to the pattern forming in the market.