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Continuation chart patterns signify that price will continue in its current trend. These are commonly referred to as periods of ‘consolidation’. These periods of consolidation are formed due to the buyers (or sellers) taking a break before continuing to push the market further in their favoured direction.

Lets have a look at some common continuation chart patterns, below.

 

Bearish Rectangle

A bearish rectangle is formed when price consolidates after a downtrend.

During this consolidation period, the sellers take a break from pushing the market as dramatically as what they had been and the buyers slightly push back to balance out the price, causing a sideways trend.

This sideways trend can be boxed up in the form of a rectangle, like below. 

downtrend stuck in a box

During this period of consolidation, if the price breaks the bottom of the rectangle this signifies that price may be entering a further downtrend. 

 

forex price falls graph

As you can see in the image above, once the price has broken the bottom of the rectangle it then normally enters a large downtrend.

 

Note: When the price enters this downtrend, it tends to move the same distance downwards as the size of the rectangle itself.

 

 

Bullish Rectangle

A bullish rectangle is formed when price consolidates after an uptrend.

During this consolidation period, the buyers take a break from pushing the market as dramatically as what they had been and the sellers slightly push back to balance out the price, causing a sideways trend.

This sideways trend can be boxed up in the form of a rectangle, like below. 

 

forex graph uptrend

During this period of consolidation, if the price breaks the top of the rectangle this signifies that price may be entering a further uptrend. 

 

graph uptrend price rise

As you can see in the image above, once the price has broken the bottom of the rectangle it then normally enters a large uptrend.

 

Note: When the price enters this uptrend, it tends to move the same distance upwards as the size of the rectangle itself.

 

 

Bearish Pennants

A bearish pennant is similar to that of a bearing rectangle, in which price has been in a downtrend but is now consolidating. This is due to the sellers taking a break from pushing the market as dramatically as what they have been, with the buyers showing some slight resistance.

This period of consolidation causes a sideways trend that can be boxed within a symmetrical triangle, known as a pennant. 

 

downtrend graph brief consolidation forex

During this period of consolidation, if the price breaks the bottom of the pennant this signifies that price may be entering a further downtrend. 

 

forex downtrend

As you can see in the image above, once the price has broken the bottom of the pennant it then normally enters a large downtrend.

 

Note: When the price enters this downtrend, it tends to move the same distance downwards as the forming downtrend.

 

 

Bullish Pennant

A bullish pennant is similar to that of a bullish rectangle, in which price has been in a downtrend but is now consolidating. This is due to the buyers taking a break from pushing the market as dramatically as what they have been, with the sellers showing some slight resistance.

This period of consolidation causes a sideways trend that can be boxed within a symmetrical triangle, known as a pennant. 

 

forex uptrend consolidation

During this period of consolidation, if the price breaks the top of the pennant this signifies that price may be entering a further uptrend. 

 

uptrend continues graph forex

As you can see in the image above, once the price has broken the top of the pennant it then normally enters a large uptrend.

 

Note: When the price enters this uptrend, it tends to move the same distance upwards as the forming uptrend.

LESSON SUMMARY:

– Continuation chart patterns signify that price will continue in its current trend. These are commonly referred to as periods of ‘consolidation‘. 

– A bearish rectangle is formed when price consolidates after a downtrend.

– A bullish rectangle is formed when price consolidates after an uptrend.

– A bearish pennant is formed when price has been in a downtrend but is now consolidating. 

– A bullish pennant is formed when price has been in an uptrend but is now consolidating. 

Lesson tags: free forex course
Back to: Free Forex Course > Step 6 - Charting Patterns
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