What a continuation pattern is
A continuation pattern is a chart formation that appears during an existing trend and suggests the market is taking a pause before resuming that trend. In forex this pause can last minutes, hours, days or longer depending on the time frame. The idea behind continuation patterns is simple: price moves strongly in one direction, then consolidates as buyers and sellers temporarily balance, and finally breaks out to continue the original move. Traders use these formations to find entries and to estimate how far the next leg of the trend might travel.
Continuation patterns are a visual way to read the tug-of-war between supply and demand. They don’t guarantee a move will continue, but when combined with context and confirmation they can point to higher-probability trade setups.
Common continuation patterns
Continuation patterns come in several familiar forms. The most frequently used in forex are triangles, flags and pennants, rectangles (trading ranges), wedges, and cup-and-handle formations. Each captures a different way that consolidation can show up on a chart.
- Triangles (ascending, descending, symmetrical)
- Flags and pennants
- Rectangles (horizontal trading ranges)
- Wedges (rising and falling)
- Cup and handle
Below are short, practical descriptions of each so you recognise them on price charts.
Triangles
Triangle patterns form when two trendlines converge. An ascending triangle shows a flat resistance line and rising support, often resolving upward when the prior trend was bullish. A descending triangle has a flat support line and falling resistance, commonly resolving downward in a bearish context. Symmetrical triangles have two converging trendlines with similar slope; they are more neutral and often resolve in the prior trend’s direction but can break either way.
Flags and pennants
Flags and pennants are short-term consolidation patterns that almost always follow a sharp move — the “flagpole.” A flag looks like a small channel that slopes against the prevailing trend, while a pennant looks like a small symmetrical triangle. Both typically resolve in the same direction as the flagpole and are popular on intraday and swing charts.
Rectangles
A rectangle forms when price bounces between parallel support and resistance levels. It represents a clear balance between buyers and sellers. When the price breaks out of the rectangle, the most common outcome is a continuation of the prior trend, although breakouts can fail.
Wedges
Wedges are formed by converging trendlines that both slope in the same direction. A falling wedge in an uptrend is usually seen as bullish continuation (or a potential reversal if it appears after a long downtrend), while a rising wedge in a downtrend is often bearish. Wedges tend to compress price and can produce strong breakouts once the range ends.
Cup and handle
The cup and handle looks like a rounded “U” (the cup) followed by a small pullback (the handle). In a bullish context it is treated as a continuation when it appears inside an existing uptrend: the breakout from the handle resumes the prior advance. This pattern usually takes longer to form than flags or pennants.
How continuation patterns form: the key elements
A useful way to read any continuation pattern is to break it into three parts: the prior trend, the consolidation phase, and the breakout.
First, the prior trend gives context. A pattern that forms after a clear, sustained move is more likely to be a genuine continuation than the same pattern appearing in a choppy market. Second, the consolidation phase is where the pattern itself develops: price ranges contract, volume often falls, and momentum slows. Finally, the breakout is the defining moment — price moves beyond support or resistance and ideally does so with increased conviction.
Volume and other indicators are helpful confirmation tools. In many cases you will see declining volume during consolidation and a volume spike as the breakout happens. Momentum indicators such as the RSI or MACD can help you judge whether the breakout has real follow-through or is a weak move that might fail.
How traders typically trade continuation patterns
Trading continuation patterns involves three decisions: where to enter, where to place a stop, and where to place a target. Traders also decide whether to act on the initial breakout or to wait for a retest.
A common step-by-step approach looks like this. First, confirm that a clear trend preceded the consolidation. Second, draw the pattern’s boundaries — trendlines for triangles and wedges, parallel lines for flags and rectangles. Third, wait for a decisive close beyond the boundary on your chart time frame. Many traders prefer to see a candle close beyond the level or a retest of the breakout level followed by a renewed move. Fourth, place a stop in a logical location that invalidates the pattern: below the consolidation for bullish setups, above it for bearish ones. Finally, set a profit target using a measured move (for example, projecting the height of the pattern from the breakout) or by using trailing stops to capture extended trends.
To help with confirmation, look for a few things before entering:
- Declining volume during the consolidation followed by rising volume on the breakout
- Alignment with a higher-timeframe trend (a daily uptrend supporting a bullish continuation on a 4‑hour chart)
- Supporting indicator signals such as rising momentum or moving-average alignment
Using a checklist like this reduces impulsive entries, but it does not eliminate risk.
Practical examples
Imagine EUR/USD has rallied 200 pips over a week and then trades sideways for two days between 1.1200 and 1.1250, forming a rectangle. A trader watching the pair draws the rectangle and waits. When price closes above 1.1250 on above-average volume, the trader could take an entry in the breakout direction, place a stop below 1.1200, and project the next target by adding the rectangle height (50 pips) to the breakout level.
Another example: GBP/JPY produces a sharp upward move in one session, then forms a tight, downward-sloping flag over the next ten candles. The flag is small compared with the flagpole. A breakout back above the flag’s upper trendline on a 1‑hour chart, confirmed by a momentum indicator turning bullish, would be treated as a classic bullish continuation. Some traders enter immediately on the breakout, others wait for a retest of the broken trendline before entering to reduce the chance of a false breakout.
For a triangle example, picture USD/JPY trending higher and then forming an ascending triangle with rising lows and a flat resistance at 150.00. If a daily close above 150.00 accompanies a spike in volume, traders often regard that as confirmation that the uptrend will resume and use the triangle’s base to estimate a target.
These examples are illustrative; they are not trade recommendations. Always test setups on historical data and in demo accounts before using real funds.
Timeframes and practical considerations
Continuation patterns can appear on any timeframe. Flags and pennants often show up on lower timeframes and resolve quickly, while triangles and cup-and-handle patterns can take days to months. The reliability of a signal usually increases with the timeframe, but larger timeframes require more patience and larger stop distances.
It’s also important to consider market context: economic news releases, sessions with thin liquidity, and correlated markets can all change how a pattern behaves. For instance, a continuation signal that arrives just before a major central bank announcement may be more likely to fail due to sudden volatility.
Risks and caveats
Continuation patterns are tools that reflect recurring behavioural structures in price, but they do not guarantee outcomes. False breakouts are common; price may move beyond a boundary briefly and then reverse, trapping traders. Leverage in forex magnifies both gains and losses, so even a small failed breakout can produce large percentage losses if position size and stops are not managed.
Patterns are partly subjective: two traders may draw trendlines differently and reach different conclusions. Indicators such as volume or RSI provide confirmation but can also give conflicting signals. Past pattern performance is not a guarantee of future results, and patterns that work on one currency pair or time frame may fail on another.
Because of these risks, always manage risk with defined stops, sensible position sizing, and a plan for handling trade losses. Use demo accounts to practice pattern recognition and execution. Remember that nothing here is personalised advice; trading involves risk and you should consider your own situation and, if appropriate, seek professional advice.
Key Takeaways
- Continuation patterns signal a pause in a trend and often precede a resumption of that trend; common examples include triangles, flags/pennants, rectangles, wedges and cup-and-handle.
- Successful use of these patterns depends on context: a clear prior trend, clean pattern boundaries, and confirmation from volume or momentum.
- Trade management is essential: define entry rules, place stops where the pattern is invalidated, and choose profit targets using measured moves or trailing stops.
- Trading carries risk; practice, use proper risk management, and do not treat patterns as guaranteed outcomes.
References
- https://www.babypips.com/forexpedia/continuation-pattern
- https://blueberrymarkets.com/academy/top-continuation-patterns/
- https://www.forex.com/en-us/learn-forex-trading/11-chart-patterns-you-should-know/
- https://www.investopedia.com/terms/c/continuationpattern.asp
- https://corporatefinanceinstitute.com/resources/career-map/sell-side/capital-markets/continuation-pattern/
- https://www.luxalgo.com/blog/ultimate-guide-to-continuation-patterns-and-indicators/