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Lesson 10.7 – Continuation Patterns

The most common continuation patterns used in Forex technical analysis consist of flags, pennants and gaps. These classic continuation chart patterns generally indicate or help confirm that the major trend will probably continue.

Continuation patterns differ from the primary reversal patterns, such as the head and shoulders top and bottom pattern for example, which indicate that a change in the overall direction of the trend may occur.

Flags

Flags represent a brief period of consolidation seen after a steep up or down move. The price action forms a pattern with parallel boundaries slanting either up or down. The pattern indicates a pause in the general trend before the market continues to trade in the trend’s original direction.

 

Flag patterns

Figure 1: This schematic diagram depicts a bullish flag continuation pattern showing the consolidative trading range. White arrows illustrate the significant upwards flag pole move before the consolidation and the measured move that follows the trading range breakout.

Flags tend to “blow” contrary to the trend, so a downtrend would typically have an upward blowing flag, while an uptrend would have a downward blowing flag. Flag formations are usually accompanied by a decrease in volume and are followed by a sharp