Dictionary

Continuation pattern

A consolidation shape that forms inside a trend and, when it resolves, most often resolves in the direction the trend was already going.

The bull flag. A sharp advance (the pole) followed by a small channel that drifts gently lower (the flag); here the advance then resumes out of the channel. A bear flag is the same shape upside down: a fast drop, then a slow drift higher.

The family includes bull-flag, bear-flag, pennant, rectangle-pattern, ascending-triangle and the candle sequences rising-three-methods and falling-three-methods. All describe a pause: price stops trending, ranges for a while, and then continues.

The mechanical logic is simply that trends persist more often than chance in many markets, so a pause inside a trend has a modestly better than even chance of resolving with the trend. That is a small edge, not a certainty.

Every continuation pattern needs a failure rule, because the same shape that continues a trend can also be the first stage of a top. The standard rule is that the pause must stay within the impulse that preceded it; once it retraces the whole move, it is not a continuation pattern any more.

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