Continuation Patterns Let You Know Trends Will Keep Cruisin'
Written by S. Wade Hansen Technical Analysis

 

Answering the Question: Will the Trend Continue?

 

Road trips are some of our favorite vacations. You jump in the car, head out on the open highway and soak in all of the scenery that you miss when you fly somewhere. Of course, every once in a while you have to interrupt your cruising to take a pit stop---to put some gas in your car and buy some snacks for you. Pit stops are part of the adventure. And let's face it, driving would get pretty old after a while if you didn't stop and take a break every now and then. At the same time, nobody wants to spend their entire vacation at the rest stop. So once you've had a chance to stretch your legs and fill up the gas tank, you jump back into the car and head back out on the open road.Continuation Price Patterns

 

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Stocks take exciting road trips all of the time. They cruise along for a while---passing support and resistance levels and other significant price points along the way---but every once in a while, they need to take a pit stop. After big price moves, the traders who are pushing these stocks higher and lower have to stop to catch their breath. Don't get too comfortable though. The pit stop isn't going to last forever.

 

If a stock really is in the middle of a road trip, a continuation pattern will form while the stock price consolidates in its pit stop. Continuation patterns tell you that the stock is going to resume its previous trend after it breaks out of the continuation pattern.

 

Continuation patterns, like all price patterns, are made of the following four pieces:

 

- Old trend: the trend that the stock price is in as it starts to form the price pattern

 

- Consolidation zone: a constrained area defined by set support and resistance levels

 

- Breakout point: the point at which the stock price breaks out of the consolidation zone

 

- New trend: a resumption of the old trend that the stock price enters as it comes out of the consolidation zone

 

[To learn more, check out this article and video on Price Patterns.]

 

 

Price Pattern Diagram

 

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Learning Markets VideoTo learn more, click here to watch the video on Continuation Price Patterns.

 

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3.25 Copyright (C) 2007 Alain Georgette / Copyright (C) 2006 Frantisek Hliva. All rights reserved."