Training Video 9

 

Trend continuation patterns

 

This learning video is about stock price trend continuation patterns; triangles, rectangles, flags and pennants. And patterns that can either signal a reversal or a continuation with the rounding top, diamond pattern and wedges.

This is the nineth video to start learning basic technical analysis techniques.

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Hi! Sylvain Vervoort with technical analysis part 9. We will continue to look at price trend patterns. We started with reversal patterns now continuing with patterns that can be either a continuation or a reversal pattern. Do you like this video? Then pay a visit to my website at stocata dot org.  The final purpose of this video series is to teach you how to trade successfully applying technical analysis techniques.

 

After a continuation correction pattern, the price extends the previous trend. Continuation patterns are a very good indication for entering a trade after a trend reaction. Triangle and rectangle formations are continuation patterns. Triangle formations appear as symmetrical triangles, ascending triangles, and descending triangles. Short period continuation patterns are pennants and flags.

Symmetrical triangles in an uptrend are created with higher bottoms and lower tops. A breakout in the direction of the previous trend confirms the continuation pattern. The duration of a triangle continuation pattern on a daily chart should be minimum about 20 days. Smaller values should be classified as pennants.

When lower tops are made in an uptrend and next price dropping back to horizontal support levels, a descending triangle will be created. A breakout in the direction of the previous trend confirms the continuation pattern.

When equal tops are made in an uptrend and next price makes higher bottoms, a ascending triangle is created. A breakout in the direction of the previous trend confirms the continuation pattern.

When higher bottoms are appearing in a reaction to a falling price trend, but the tops that follow are lower, it will create a symmetrical triangle in a downtrend. Breaking out of this triangle formation on the lower side confirms the continuation pattern and continues the previous downtrend.

When equal tops are made in a downtrend and next price makes higher bottoms, a ascending triangle is created. A breakout in the direction of the previous trend confirms this continuation pattern.

When price makes lower highs and next finds support in a downtrend at equal bottoms, a descending triangle is created. A breakout in the direction of the previous trend confirms the continuation pattern.

 
The rectangle is a relatively rare pattern, appearing almost always as a continuation pattern, although it can exist as a reversal pattern. The price moves between two horizontal trend lines  and touches a minimum of two times each line. Here an example of a rectangle continuation pattern in an uptrend.

And an example of a rectangle continuation pattern in a downtrend.

 

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With a continuation of the previous trend 90% of the time, flags and pennants are reliable short term continuation patterns. They create a pause from 5 up to 25 bars in the current trend and then continue the previous trend. Most of the flags and pennants take up from 10 to 15 bars. Generally, the volume goes down during this phase. This chart shows some flags in an uptrend.

Have a look at this example of flags in a downtrend.

Here you can see some pennants in an uptrend.

And here an example of some pennants in a downtrend.

A rounding top pattern, with an inverse rounded bowl shape, appears mainly on daily and weekly bar charts. A rounding top starts with a steep rising trend line which with time becomes increasingly flat. Rounding tops as a reversing pattern break to the down side and lead to a farther move down 90% of the time. The pattern confirms when the price closes below the left-hand border or with a saucer lip when breaking the right-hand side of the border.

A break to the upper side of the saucer gives, on average, less profit than a break to the lower side. This is simply because, as a continuation pattern, part of the up-move already has been completed. A rounding top as a continuation pattern is confirmed when the price moves above the highest point of the rounding top.

The diamond formation is a combination of two triangles. The left is an inverted broadening triangle; the right side is a symmetrical triangle. Together they make up a diamond formation. This pattern is most common as a continuation pattern, but as we have seen in the previous video about reversal patterns, it can be a top or bottom reversal pattern as well.

Here an example of a diamond continuation pattern in a downtrend.

Wedge formations are not only interesting as reversal or continuation patterns but are also good for recognizing an Elliott beginning or ending wedge impulse wave as we will see later. So they will help to make a correct Elliott wave count in generally difficult circumstances. The falling wedge exists as a reversing pattern in a falling trend and as a continuation pattern in a rising trend. The duration of the wedge should be a minimum of 20 bars; with fewer than 20 bars, it is considered a flag. Breaking out of a falling wedge is generally a bullish signal. Rarely will you see the price breaking a falling wedge to the lower side. This chart is an example of a falling wedge as a reversal pattern.

A falling wedge continuation pattern in a rising trend is a price reaction in the up-going move. 
The chance for a big profit is less than for the falling wedge reversal pattern because part of the up-move is already history.

The rising wedge exists as a reversal pattern in a rising trend and as a continuation pattern in a falling trend. The duration of the wedge should be a minimum of 20 bars; with fewer than 20 bars, it is considered a pennant. Breaking out of a rising wedge is generally a bearish signal. It is rare for the price to break to the upper side of the rising wedge, although it can happen. In the chart here a rising wedge as a reversal pattern.

A rising wedge continuation pattern in a falling trend is a price reaction for the down-move. The chance for a big profit is less for a rising wedge continuation pattern than for a rising wedge reversal pattern because part of the down-move is already history.

I have shown you those that I consider the most important price continuation and combined continuation and reversal patterns used in technical analysis. In the next video we will look at the importance of windows or gaps in the price chart. Watch out for this video. Stay in touch, subscribe to my channel, tell your friends and pay a visit to my website: stocata dot org. Have a nice day and I see you through the next window...

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