Continuation patterns
Lesson 17 of 23 in the course “Technical Analysis”. Free, with animations and a quiz.
The flag: the trend catches its breath
After a sharp burst (the pole), price rests in a narrow channel sloping against the move: the flag. Volume usually fades inside it. A break of the flag in the pole’s direction continues the trend. The classic target is the pole’s length measured from the breakout point. A pennant is the same, only the rest is a small triangle.
Triangles
A triangle is a narrowing range. In an ascending one the top is flat and the lows rise: buyers keep pressing, and the breakout is more often up. A descending one is the opposite. In a symmetrical one both sides converge, and the breakout more often follows the prior trend. But “more often” isn’t “always”, so only a close beyond the line confirms the direction.
The wedge
A wedge looks like a triangle, but both lines slope the same way. A rising wedge: price makes new highs, but with smaller and smaller swings, and the lines converge. It’s a sign of fatigue, and such a wedge more often breaks down. A falling wedge is the mirror and more often breaks up. Remember the wedge: you’ll meet it again in Elliott waves as a diagonal.
All in one table
All continuation patterns are a pause inside a trend. Each has a boundary beyond which it’s confirmed, and a target measured from its height or the move before it. A pattern on the daily weighs more than one on the 5-minute. Most importantly: a pattern is a reason to look closer, and the decision comes from a plan with an entry, a stop and a target.
Check yourself
- The flag pole is a rise from 100 to 114, the flag breaks at 111. Where’s the target?
Correct answer: About 125. The pole is 14 long. From the breakout point: 111 + 14 = 125. - The triangle’s top is flat at 50 and the lows are rising. Which way is a breakout more likely?
Correct answer: Up: it’s an ascending triangle. Rising lows show buyers pressing on the 50 level. Such a triangle more often breaks up, but a close above 50 is what confirms it. - Price rises inside a converging wedge, each swing smaller. What’s more likely?
Correct answer: A break down: the rise is running out. A rising wedge is a fatigue pattern: new highs come harder and harder. It more often breaks down.