Continuation patterns indicate a pause in trend, implying that the previous direction will resume after a period of time.

Price Channels

A price channel is a continuation pattern that is bound by a trend line and a return line. A price channel may slope up, down or not at all. Depending on the channel slope, each of the lines can serve as either support or resistance. Price channels with negative, downward slopes are considered bearish; and those with positive, upward slopes are bullish. Horizontal channels are neither bullish nor bearish, but simply reflect a pause in the underlying trend.

Powered by Go Forex

To draw a bullish price channel it is necessary to have at least two higher-lows and two parallel, or higher-highs. Conversely, to draw a bearish price channel, two lower-highs and parallel, or lower-lows are necessary.

Although channels are usually referred to as continuation patterns, there are exceptions when a reversal trend might occur. In those cases prices usually fail to touch the return line before falling in what can be an early sign for an impending reversal.

Channels also have quantitative implications. Once price action breaks through the channel line, prices usually travel a distance equal to at least the width of the channel.

Because technical analysis is just as much art as it is science there is room for flexibility. Even though exact trendline touches are ideal it is up to each individual to judge the relevance and placement of both the main trendline and the channel line. By the same token, a channel line that is exactly parallel to the main trendline is ideal.

Symmetrical Triangle

The symmetrical triangle usually forms during a trend as a continuation pattern. The pattern contains at least two lower-highs and two higher-lows. When the lines connecting these points are extended, they converge and a symmetrical triangle results.

The symmetrical triangle has both measuring and timing implications. Once the price breaches one of the triangle’s boundaries, prices tend to travel a distance equal to the triangle’s base or more (see the example below). From the timing perspective, the breach of a triangle should occur somewhere between half-way and two thirds along the distance from base to apex, i.e. the triangle’s height.

Powered by Go Forex

A Symmetrical Triangle. The breakout occurs between half and two thirds the distance from the triangle’s base and its apex. The size of the breakout will be at least as high as the triangle’s base.

Flags and Pennants

These two similar continuation patterns usually occur at the midpoint of a price movement and can be identified and distinguished by the shape of their “body;” a rectangle sloping slightly against the trend in the case of the flag, and a triangle in the case of the pennant. Flags and pennants are similar in both their form and interpretation. Both mark a small consolidation of a price movement, though to be truly considered as continuation patterns there should be evidence of a prior trend. Flags and pennants are usually preceded by a sharp advance or decline in the direction of the trend, which provides the shape of the “flagpole” on the chart. The breakout from the pattern should show a minimal price move equal to the length of the flagpole.

Powered By Go Forex

A Bullish Flag. When a breakout occurs, the minimal price move is equal to the size of the flagpole