There are different price/ chart patterns, each with its own rules, and they can be categorized as either a reversal or a continuation pattern.
Continuation patterns indicate that the price action will continue to move in the same direction even after the continuation pattern completes. Let’s look at three continuation patterns:
Cup and Handle Pattern
Cup and handle are bullish continuation patterns where an upward trend has paused but will continue when the way is confirmed. The “cup” portion of the price pattern should be a rounding bottom or “U” shape rather than a sharp “V” shape with equal highs on both sides of the cup or rounding bottom.
The “handle” part of the pattern forms on the right side of the “cup” as a short pullback that looks just like a flag or pennant. As the handle formation completes, the price should rise to new highs and resume higher.
Flag Pattern
Flag patterns are continuation patterns visible using two parallel trendlines that can slope up, down, or sideways (horizontal). Typically, the flag’s formation has declining volume, which recovers as the price breaks out of the flag formation.
Pennant Pattern
Pennants or triangles are also continuation patterns visible by drawing two trendlines that eventually converge. The trendlines move in two directions; one will be a down trendline and the other an up trendline. The volume will often decrease during the formation of the pennant, followed by an increase when the price eventually breaks out.
