Different continuation patterns
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Symmetrical triangles are a type of market continuation pattern that normally such that upon the market rallying up or down, the market will then pause before it resumes in the overall direction. This market pause will be formed by the market making lower highs followed by higher lows giving the impression that the market is forming a triangle. A symmetrical triangle consist of two symmetrically converging support and resistance. These two levels of support and resistance will appear as if they are moving towards one another and in that process, form what will look to be a symmetrical triangle as the two levels of support and resistance will be facing one another. Levels of support and resistance will appear as if they are moving close to each other. Thus converging. This is then considered as a market pause as the point at which the market is forming a symmetrical is an equilibrium point where we have the same amount of buying orders to the selling orders. However, as these two lines of support and resistance become close and close to one another, the imbalance arises where one party will overwhelm another. In a bearish symmetrical triangle for instance, the price is dropping, then it reaches a point of equilibrium where the symmetrical triangle will then form.
Upon the symmetrical triangle forming the market is then most likely to break in the initial direction in which it was moving in before the formation of a triangle. It is for this reason that we say it is a continuation pattern as the market will make a bearish move, followed by the being bounded by converging levels of support and resistance then the market resumes in the downward as the closer these two lines of support move to each other the out of balance the market becomes and has to breakout in one direction which is most likely to be the downward move provided that the move the triangle formation was a downward move. The demonstration depicts roughly how the symmetrical triangle will forming.
Flag patterns are another form of market continuation patterns. Unlike the symmetrical triangle whereby we have two levels of support and resistance converging as if going to meet at one point. With a flag pattern we have two levels of support and resistance moving in the same direction. The market begins with a sharp downward move or a sharp upward move then follows a brief period of consolidation. The market will seem to be bounded by two levels which will be acting as support and resistance. This is where supply and demand will appear to be balanced. This because the price will drop only to find temporary support at a certain level then rally upwards to then find a temporary resistance at a certain level. This then creates what will then look like a flag formation. This is normally a continuation pattern as during the brief consolidate period it would then be regarded as market pause because shortly after that period then follows a sharp upward/downward move. The sharp move after the consolidation period signifies that supply and demand are out of sync or out of balance. For more information on supply and demand click here
An ascending triangle is a bullish continuation pattern characterised by the market finding resistance at a certain level but due to the bullish strength that is in play. The market keeps making higher lows, This indicates that the momentum is currently to the upside as the prices are dropping the buyers enter the market and stop the prices from making a lower low, rather the market makes a series of higher lows as a result of too much bullish momentum. As the market reaches a level of resistance and prices get rejected, the market makes anything else but higher lows. Every time the prices are set to drop, they find support at a much higher price than the previous one. This then signals to the informed trader that the resistance level is most likely to break. It also shows that the sellers are not strong enough to make a new low/ depending on how you look at it, whether the buyers are too strong or the sellers are not strong enough or both. Whatever the case is, fact is. An ascending triangle is a bullish continuation pattern which is often followed by a strong bullish move.
A Descending Triangle is a Bearish continuation pattern, which is a similar pattern to the Bullish ascending triangle but only this in a downtrend scenario. As the market is making a drop, it then reaches what will then seem like a short term level of support because for some time the market will keep on bouncing off at that area appearing as if it is finding it hard to break below that level of support.
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