Figures of the trend continuation
In technical analysis, there is a possibility to observe graphical figures which confirm the current trend. They are known as figures of the trend continuation. They depict a relatively short period of market consolidation after which breakthroughs of these figures towards the previous trend movement follow.
The most significant figures are:
The flag comprises information about the price movement direction and its target. This figure depicts the short period of consolidation in the limits of stable or steep uptrend. The consolidation figure is limited by the support and resistance lines which are parallel or converging a little, forming a figure similar to a flag (parallelogram), inclined, as a rule, opposite to the current trend direction or located horizontally. The steep line of the previous trend resembles the flagpole.
Pennants are similar to flags by nature, that is why similar analysis can be applied to them as well. The only difference between these figures is that the support and resistance lines converge closely, forming the pennant. If the prior trend was bullish, the graphic figure is called the bull pennant.
Triangles can be viewed as flags without flagpoles.
'Four types of triangles are distinguished:'
A symmetrical triangle is built by symmetrically converging support and resistance lines, drawn though at least through four points. The symmetrical convergence of these lines reflects the existing market balance between demand and supply. Consequently, the breakthrough can emerge in any direction. But if there is a bullish symmetrical triangle, the break is likely to be directed like the previous trend, proving the name of triangle as a figure of trend continuation.
An expanding triangle, or megaphone, is an inverted image of any prior discussed triangles, where not the base of the triangle, but its corner is adjusted to the line of the prior trend. The change of the trading volume happens accordingly, the volume increases proportionally to the formation of the expanding triangle.
Wedge is closely related to the patterns of triangle and pennant. It is similar in form and the time of formation, but from the viewpoint of form and analysis, it resembles a pennant without a flagpole more. It’s usually broken through in the direction opposite to its incline, but coinciding with the direction of the prior trend. Depending on the trend, the wedge can be bullish or bearish. By the wedge on the chart it is possible to see only the trend continuation. The prices are not defined by this figure.
The rectangle demonstrates the market consolidation period. After its breakthrough the currency is likely to continue the previous trend. But its disruption can, however, lead to the transition from the trend continuation to the recoil.
This figure is easily distinguished, and it can be considered as a small sideways trend. When it is formed along the uptrend and the price breaks though it in upward direction, the rectangle is called bullish.
The target of the price is the level, which is situated over a distance of the triangle height from the break point. The price movement happens within the vivid horizontal support and resistance lines. The actual breakthrough during consolidation period can happen through any side of the triangle. If the consolidation emerges along the falling trend or its continuation after the breakthrough, the triangle is called bearish.
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