What are Continuation Chart Patterns?
Continuation patterns are chart patterns, which are formed due to temporary profit booking, in an ongoing trend. They are like resting areas in an ongoing trend. They are the areas where a great good number of traders think that price may not go further. But still bigger group of traders continue to take action in the direction of the trend.
Pattern Trading gives us consistent, profitable trades.
In an up trend, the momentum slows down due to periodic profit booking. A good lot of traders think that it is enough or that they have reached their target. So they want to sell their position. The supply increases reducing the momentum of price rise or the price might even drop. Buy the smart money finds it an opportunity to add more to their position. So the price slows to drop or it may even rise.
Similarly, in a down trend, a lot of traders who are short want to book some profit. Those who think that the stock is available for a bargain starts buying. But the smart money finds it easy to sell when there is increased demand. When the supply becomes more than the increased demand, price falls further. And the trend continues.
This tug of war between buyers and sellers, moves the prices up and down causing continuation chart patterns in the stock charts, before they continue in the direction of original trend.
Having a good knowledge of continuation chart patterns allows us to speculate positively about the further course of the trend. It allows us to add more to our position. Those who wants to hold on for a longer period are at ease not worrying about temporary pull back.
These can be bullish continuation patterns or bearish continuation patterns.
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