Trend continuation patterns in technical analysis

The main element of trading is charts that display prices over time. At first glance, the charts may seem like ordinary unsystematic broken lines, without any dependence, and price fluctuations are random, but they are not. Analyzing charts both manually and with the help of special technical tools based on the principles of mathematical statistics and analysis, it is possible to identify hidden patterns in price changes, trends in their change, and predict with high probability how prices on the stock exchange will change in the next moment, which allows you to make profitable transactions.
Based on many years of trading experience, specialists empirically and analytically identified several figures on the chart, which predict with high probability one of the possible options for the chart’s behavior – for example, a continuation or a change in a trend. You can often recognize them by the fact that they are quite sharply designed and stand out from the rest of the chart, and are also in the middle of a trend. In this article, we will consider those figures from them that indicate the continuation of the trend, since it is known that in order to be successful, a trader needs to trade in the direction of the trend. Knowing these patterns will allow him to confidently open sell positions at the highest prices with the least risk.

Flag

Figure “Flag” [/ caption] The first figure that we will consider is called the “Flag” because of its external resemblance to it. The flag appears only with a strong trend, unlike other figures. The element of interest to us in this figure is its “flagpole”, which also looks like a real flagpole. It shows the direction of the prevailing trend. The zigzag part, bounded at the edges by the shape of a rectangle, is the flag’s cloth, the flag itself, showing a pause in the market. The “flag” can be either with a negative or a positive slope, while if the flagpole slope is positive, then the flag itself has a negative slope, and vice versa – if the “flag” slope is positive, then the flagpole slope is negative. As you can see, a positive or negative slope of the chart indicates an increase or decrease in price. [caption id=”attachment_13942″ align=”
Flag pattern in trading

How to trade on the “flag”

The direction in which the trend is going is determined, so it is necessary to focus only on the quantitative factor of the price. The price target after the pattern has formed can be calculated by determining the height of the flagpole. It is also worth considering that the maximum size of the flag itself usually does not exceed five zigzags, after which, on the fifth, the price goes beyond the figure.

Wedge

It is built after a sharp price change, while a figure resembling a pennant is formed, but with the difference that the triangle that forms the fluctuations is not completely formed. This element has a slope in the direction opposite to the trend.
Like other figures described above, this one can be ascending and descending. In the case of a rising wedge, it has an upward slope, but this type of figure shows the continuation of a downtrend. And vice versa – if the falling wedge is tilted down, then this is a sign that the upward movement will continue. According to the method of trading, this figure differs depending on its subspecies with which we are dealing: ascending or descending.

Rising wedge trading.

It is worth starting trading after the lower line of the wedge, also called “Support”, is broken. Then it is necessary to expose the position for sale. Place your stop loss above “resistance”. In this case, the take profit must be greater than the size of the figure.

Trading in a falling wedge

After the price has broken through the upper line, we enter the market. We set a take profit larger than the wedge size and place a stop loss below the lower line.

Triangle

The triangle looks like zigzag fluctuations within a contour shaped like a triangle. In most cases, it is formed at the end of the main trend. Triangles differ in shape type and signal strength.

Types depending on the shape of the figure

In ascending triangles, the axis of symmetry has a positive slope. In descending triangles, the axis of symmetry has a negative slope. For symmetrical triangles, the axis of symmetry is parallel to the time axis, that is, it has no slope. A symmetrical triangle is a strong trend continuation indicator.

How to trade

The way to trade the triangle depends on the prevailing trend. In the event that an ascending triangle appears on a bearish trend, or a descending triangle on a bullish one, then the trend will have low strength. Then one triangle is not enough to understand that the trend will continue. And vice versa: a strong signal appears with an ascending triangle on a bullish trend and a downward one on a bearish one. The same patterns are known that were seen in other figures:

1. If there are more than five waves, the price will most likely rise faster after the breakout.
2. The earlier the breakout occurs, the stronger the trend.

Also, as with the previous figures, it is better to trade on triangles only when a price breakout has been confirmed.

bullish rectangle

A bullish rectangle is a trend continuation pattern that is formed at the moment when there is a pause in the price change during a strong uptrend, and also oscillates for a while without going beyond the parallel lines – indicating the limit of fluctuations.

After that, the trend moves up again. It is under such conditions that a trend continuation pattern is formed, better known in trading as the “Bullish Rectangle”. There are two versions of rectangles – bullish and bearish, however, like most other figures. We will consider bullish in this article, since it is it that is the sign that the current trend is likely to continue. We will look at the methods for identifying them, as well as the ways, strategies and tactics that are best to trade using a bullish rectangle pattern.

Bullish rectangle in trading

Because of its simple shape, it is very easy to find and identify on the chart. Let’s tell you what it looks like: oscillations in the form of zigzags, bounded by a rectangular contour containing two straight lines opposite each other and parallel to the time axis. Before and after the price consolidated in a rectangle-shaped range, it made sharp jumps. The figure begins when the price starts to fluctuate in the specified range, and ends when it breaks through one of the limits – one of the lines.

Trading Methods for a Bullish Rectangle

First method

Opening a deal. It is necessary to enter the market immediately after the candle closes above the upper limit, the resistance line. That is, you should place a buy position if the deal is long. Stop loss should be placed just below the support level, which is indicated by the lower line on the chart. You need to set the profit level as follows: take the height of the figure and set the profit level at the same distance above the resistance level (upper line).

Second method

The algorithm of actions begins in the same way as in the first method – you must first wait until the candle closes at the resistance level, breaking it. Then you need to open a buy order at the moment when the price falls to the resistance level and starts to grow again (at this moment the resistance line turns into a support line for the new rectangle figure). Stop loss should be placed slightly below the resistance line (new).

How to set the profit level

Just like in the first method, it is necessary to set the profit level at the distance of the figure height above the resistance level.

A bullish rectangle is a continuation pattern of an uptrend, which shows what can be bought profitably. A long trade can be opened after the resistance line is broken (according to the first method of trading), or when the price after that also bounces from this level, turning it into a new support line (the second method of trading on the bullish rectangle) Stop loss should be placed under lower support line (trading method 1), or below the upper resistance line after oa becomes a new support line (bullish rectangle trading method 2). The profit level should be placed at a distance that is equal to the height of the figure, above the upper resistance line. Trend continuation patterns in technical analysis, how to find and how to trade: https://youtu.be/9p6ThSkgoBM

Conclusion

Although the search and subsequent trading using the above patterns is not an exact science, but only belongs to the statistical area of ​​\u200b\u200bmathematics, which gives only approximate forecasts of price changes, it is still worth practicing in identifying them, since this way you will find patterns much more often, and Knowing what they mean will help you make correct predictions and get the most value from trades with the highest probability and the least risk. Moreover, these figures can serve not only as trend continuation signals, but also show price targets, which is also important for a trader who approaches business rationally and thoughtfully. Ultimately, the use of these figures, statistically brings more benefits.