Continuation Chart Patterns

Chart patterns are specific price formations on a chart that predict future price movements. As technical
analysis is based on the assumption that history repeats itself, popular chart patterns have shown that a
specific price movement is following a particular formation of price (chart pattern) with high probability.
Therefore, chart patterns are grouped into
(1) Reversal patterns – that signal reversal of the underlying trend.
(2) Continuation patterns – that signal a continuation in the underlying trend, and

Continuation patterns
Continuation patterns are as important as reversal patterns. They are more suitable for a different style of
trading- trend following. While reversal patterns are good for contrarian traders and swing traders,
continuation patterns are considered to be great for finding a good entry point to follow the trend.

 Rectangle

A rectangle is a continuation pattern, which means it confirms that the underlying trend should continue. It
is divided into bullish and bearish rectangles, depending on the underlying trend. A bullish rectangle
appears during an uptrend, when the price enters a congestion phase, during a sideways trading. The price
will likely break out in the direction of the preceding trend. The trigger signal is the break of the upper line
of the rectangle, with the price target being the height of the rectangle. For the bearish rectangle, the
opposite rules apply. It forms during a prevailing downtrend, when the price enters a congestion phase and
trades sideways. This means the trend will most likely continue downwards, with the break of the lower
rectangle line. The price target is again the height of the rectangle.

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 Continuation Chart Patterns
 Wedges

A wedge is another continuation pattern. A

bullish wedge forms during an uptrend, as the
price trades inside converging trend lines.
These converging trend lines imply that sellers
are trying to push the price lower, but don’t
have enough strength to win against the
buyers. Ultimately, the buyers win and the
price breaks through the upper trend line,
indicating that the uptrend will resume. Target
prices are calculated as the maximal height of
the wedge, which is then projected to the point
of break-out. A bearish wedge is similar to a
bullish one, with the difference that it is
appearing during downtrends, and the slope of
the wedge is up. Converging trend lines are
again showing that buyers interrupted the
downtrend, trying to push prices higher. A
break-out through the lower trendline
indicates that sellers won the battle, and the
downtrend is resuming. The target price is, like
by bullish wedges, the maximal height of the
wedge which is then projected to the point of
break-out.

 Flags

A flag is very similar to a wedge, with the

difference that the trend lines which form
the flag are parallel, and not converging. A
flag pole is also a part of the flag pattern,
because the target price is measured in a
different way than by other chart patterns.
Flags can be bullish and bearish, with a
bullish flag shown on the chart above. A
bullish flag forms during an uptrend, with
parallel trend lines above and below the
price-action, which form a down slope. A
break-out above confirms that the uptrend is
resuming. A bearish flag is pretty much the
same as a bullish flag, with the difference
that it forms during downtrends and has an
up slope. The price target is measured as the
height of the flagpole (green arrow) to the
top of the flag, which is then projected to the
lowest point of a bullish flag (or highest point
of a bearish flag).

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 Continuation Chart Patterns
 Triangles

Triangles can be ascending, descending and

symmetrical. All three types of triangles look
pretty much the same, with the difference that
ascending triangles have a flat upper trendline,
and descending triangles a flat lower trendline.
A symmetrical trendline is the most common,
and forms during both up- and downtrends. It
has converging trendlines, just like a wedge
pattern, but the slope is neither pointing up or
down. The breakout point of the lower trendline
during downtrends confirms that the downtrend
is resuming, while a breakout of the upper
trendline during uptrends confirm the
underlying uptrend. The target price is the
height of the triangle, projected to the point of
the breakout.

 Cup and Handle

A Cup and Handle pattern is a

Rounding Top pattern with an
additional pullback (the
handle). It is a continuation
pattern which shows that in
middle of an uptrend, the
sellers tried to push the price
lower, but the sentiment is
again gradually changing from
the sellers to the buyers.
Additionally, a pullback occurs
as the last attempt of the
sellers to dominate. After a
break-out of the resistance
line (green dotted line), the
target price is calculated as
the height of the Cup &
Handle pattern. An Inverse
Cup & Handle pattern appears
during downtrends, and the
inverse rules of a regular Cup
& Handle apply for it.

Monarch Networth Capital Ltd. Head Office: Monarch House, Opp. Ishwar Bhuvan, Commerce Six Road, Navrangpura, Ahmedabad - 380009. Tel No:07926666500