A continuation pattern is a chart pattern in technical analysis that forms when price pauses inside an existing trend and then resumes moving in the same direction once the pause ends. The pause shows up on the chart as a consolidation, a short period where price moves sideways or slightly against the trend between clear trendlines or support and resistance lines. Common continuation patterns include flags, pennants, triangles, rectangles and the cup and handle pattern.
Traders trade continuation patterns in 3 steps: 1) confirm the existing trend, 2) wait for the breakout candle to close outside the pattern boundary, and 3) check that volume rises on the breakout candle. Each continuation pattern trade comes with a stop-loss on the opposite side of the pattern boundary and a price target set by projecting the size of the pattern from the breakout level.
What Are Continuation Patterns in Trading?
Continuation patterns are chart patterns that show a temporary pause in a trend before price moves on in the same direction. A continuation pattern can form in an uptrend or a downtrend, and the breakout from a continuation pattern usually follows the previous trend.
During the consolidation, buyers and sellers are roughly in balance, so neither side can push price out of the consolidation. In an uptrend, early buyers close positions to lock in gains and price drifts sideways or lower, while new buyers wait for a better entry price. When buyers regain control, price breaks out of the continuation pattern and the uptrend resumes.
Traders use continuation patterns for 2 reasons: 1) to join a trend they missed at the start, 2) to add to an existing position. Continuation patterns are drawn with trendlines, support lines and resistance lines, so the entry and exit levels are easy to see on the chart.
Continuation patterns appear on any timeframe, from 1-hour charts to daily and weekly charts. Flags and pennants usually form over a small number of candles, while rectangles and cup and handle patterns can take weeks or months to complete.
Continuation Patterns vs Reversal Patterns
A continuation pattern signals that the existing trend will likely resume, while a reversal pattern signals that the existing trend is likely to end and turn the other way. Some chart patterns can act as both: rectangles and symmetrical triangles can break out in either direction, so the direction of the breakout candle shows which kind of pattern formed.
| Feature | Continuation pattern | Reversal pattern |
|---|---|---|
| What it signals | The existing trend resumes after a pause | The existing trend ends and turns the other way |
| Trade direction | Same direction as the previous trend | Opposite direction to the previous trend |
| Where it forms | In the middle of a trend | At the top or bottom of a trend |
| Common examples | Flags, pennants, triangles, rectangles, cup and handle | Head and shoulders, double top, double bottom |
Reversal patterns have their own entry rules, which our guide to reversal patterns covers in full.
What Are the Most Common Continuation Chart Patterns?
The 5 most common continuation chart patterns are 1) flags, 2) pennants, 3) triangles, 4) rectangles, and 5) the cup and handle pattern. Each continuation chart pattern has a bullish version that forms in an uptrend and a bearish version that forms in a downtrend.
Flag Pattern
A flag pattern is a short consolidation that forms after a sharp rally or drop called the flagpole. The flag itself is a small channel with 2 parallel trendlines that slope against the trend. A bullish flag slopes slightly down after a strong rally, and a bearish flag slopes slightly up after a sharp drop.
Volume is usually lighter while a flag forms and rises when the breakout candle closes outside the flag. Flags usually form in the middle of a trend and rarely form at the top or bottom of a trend. Our bull flag guide covers definition, trading strategies and trade examples to help you understand.
Pennant Flag Pattern
A pennant flag pattern forms after a flagpole, like a flag, but the consolidation is a small symmetrical triangle with converging trendlines. Pennants often form after a sharp rally or drop driven by news or earnings, and a pennant usually lasts only a small number of candles.
The flagpole is what separates a pennant from a regular triangle: a pennant always follows a sharp rally or drop, while a triangle can form after a slower trend. Pennant breakouts usually follow the direction of the flagpole, and a breakout candle with rising volume makes a pennant breakout more reliable.
Triangle Pattern
A triangle pattern forms when price moves between 2 trendlines that get closer together until they meet. Continuation traders watch 3 types of triangle: 1) the ascending triangle, with a flat resistance line and rising lows, which is bullish, 2) the descending triangle, with a flat support line and falling highs, which is bearish, and 3) the symmetrical triangle, with converging trendlines on both sides.
A symmetrical triangle can break out in either direction, but a symmetrical triangle breakout usually follows the previous trend, especially when volume rises on the breakout candle. Each triangle type has its own entry rules, which our triangle pattern guide covers in full.
Rectangle Pattern
A rectangle pattern forms when price moves sideways between parallel support and resistance lines, creating a clear trading range. A rectangle shows buyers and sellers in balance, and price tends to leave a rectangle in the same direction it entered. A bullish rectangle forms in an uptrend and usually breaks out upward, while a bearish rectangle forms in a downtrend and usually breaks out downward.
Rectangles can also act as reversal patterns, and a fakeout, also known as a fake breakout, is common at the support and resistance lines of a rectangle. Traders wait for a candle to close outside the rectangle before entering a trade. A rectangle has no fixed time limit and can last from a few days to several months.
Cup and Handle Pattern
The cup and handle pattern is a bullish continuation pattern made of a U-shaped cup followed by a small, downward-sloping handle. The handle low should sit well above the cup low, which shows that buyers are holding price close to the resistance line.
Traders place a buy order above the handle resistance line, with a stop-loss below the handle low and a price target equal to the depth of the cup. A cup and handle pattern can form over days or weeks on short-term charts and over several months on daily and weekly charts. Our cup and handle guide explains the full entry rules.
Bullish vs Bearish Continuation Patterns
Bullish continuation patterns form in an uptrend and usually break out upward, while bearish continuation patterns form in a downtrend and usually break out downward. The following table lists the bullish and bearish version of each continuation pattern.
| Pattern | Bullish continuation pattern | Bearish continuation pattern |
|---|---|---|
| Flag | Bullish flag: slopes down after a rally | Bearish flag: slopes up after a drop |
| Pennant | Bullish pennant after a sharp rally | Bearish pennant after a sharp drop |
| Ascending and descending triangle | Ascending triangle: flat resistance line, rising lows | Descending triangle: flat support line, falling highs |
| Symmetrical triangle | Breaks out upward in an uptrend | Breaks out downward in a downtrend |
| Rectangle | Bullish rectangle in an uptrend | Bearish rectangle in a downtrend |
| Cup and handle | Cup and handle pattern | Inverse cup and handle pattern |
How Do You Trade Continuation Patterns?
Traders trade continuation patterns in 4 steps: 1) identify the previous trend, 2) wait for a confirmed breakout, 3) check the volume on the breakout candle, and 4) set the stop-loss and price target. Skipping the first step is a common reason continuation pattern trades fail, because a continuation pattern without a clear trend before it is unreliable.
Identify the Trend Prior to Pattern Formation
A continuation pattern needs a clear trend before it, because a continuation pattern only signals that the existing trend will resume. In a flat or choppy market, the same shapes form often and break out in random directions, so continuation patterns are unreliable without a trend.
Traders confirm the trend with 3 tools: 1) higher highs and higher lows in an uptrend, or lower highs and lower lows in a downtrend, 2) price holding above a rising moving average, such as the 50-period moving average, in an uptrend, or below a falling moving average in a downtrend, and 3) a trendline that price has touched and respected several times.
Many traders read the trend on a higher timeframe and look for the continuation pattern on a lower timeframe. For example, a trader can confirm an uptrend on the daily chart and then trade a bullish flag on the 1-hour chart.
Wait for a Confirmed Breakout
A breakout happens when a candle closes outside the support or resistance level. Traders avoid entering a trade while price is still inside the consolidation, because price can move either way until the breakout.
Traders use 2 main entry strategies on a continuation pattern: 1) a market order when the breakout candle closes outside the pattern boundary, and 2) a limit order on a retest, when price comes back to touch the broken pattern boundary from the other side. The candle close entry gets into the trend earlier, while the retest entry gives a better price and a closer stop-loss but misses the trade if price never comes back to within the support and resistance level.
Some traders place a buy stop order a few pips above the resistance line instead of waiting for the candle to close. A buy stop order above the resistance line gets an earlier entry but leads to more fakeouts than waiting for the breakout candle to close.
| Important: A breakout candle that closes back within the support and resistance line during the session often turns into a fakeout, so always wait for the breakout candle to close outside the support and resistance line before entering a trade. |
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Check the Volume on the Breakout Candle
Rising volume on the breakout candle shows that the momentum is stronger, which makes the breakout more reliable. A common benchmark is if the breakout candle volume is about 50% or more above the average volume of the candles inside the consolidation. Volume during the consolidation is usually lighter, especially inside flags and pennants.
Note that spot forex has no central exchange, so forex charts and most CFD charts show tick volume instead of traded volume. Tick volume counts how many times the price changed during each candle, and tick volume tends to rise and fall with real trading activity, so traders use tick volume to compare the breakout candle against the consolidation candles.
Tick volume works best as a comparison on the same instrument and the same timeframe. Tick volume also rises on almost every candle at the London and New York session opens, so a tick volume spike on a breakout candle at the session open is weaker evidence of a real breakout than the same spike in a quiet part of the session.
| Pro Tip: On MT4 and MT5, add the Volumes indicator to the chart and compare the tick volume of the breakout candle with the average tick volume of the consolidation candles. |
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Set the Stop-Loss and Price Target
Traders place the stop-loss on the opposite side of the pattern boundary: below the support line or lower trendline for a bullish pattern, or above the resistance line or upper trendline for a bearish pattern. A stop-loss placed right at the breakout level is easy to hit on a normal retest, so many traders use a safer stop-loss beyond the most recent swing low or swing high inside the continuation pattern, plus a small buffer based on the average true range (ATR).
The price target comes from a measured move, which projects the size of the continuation pattern from the breakout level in the direction of the trend. Traders measure the size of each continuation pattern in 4 ways: 1) the flagpole length for flags and pennants, 2) the vertical height of the rectangle for rectangles, 3) the widest part of the triangle for triangles, and 4) the depth of the cup for the cup and handle pattern.
Some traders set the price target with a fixed risk-reward ratio, such as 1:2, and use a trailing stop-loss to protect gains as the trend continues. The following table summarises the entry trigger, stop-loss and price target for each continuation pattern.
| Pattern | Entry trigger | Stop-loss | Price target |
|---|---|---|---|
| Flag | Candle close outside the flag in the trend direction | Beyond the opposite side of the flag | Flagpole length projected from the breakout level |
| Pennant | Candle close outside the pennant in the flagpole direction | Beyond the opposite side of the pennant | Flagpole length projected from the breakout level |
| Ascending triangle | Candle close above the flat resistance line | Below the most recent rising low | Widest part of the triangle projected up from the breakout level |
| Descending triangle | Candle close below the flat support line | Above the most recent falling high | Widest part of the triangle projected down from the breakout level |
| Symmetrical triangle | Candle close outside a trendline in the trend direction | Beyond the most recent swing point inside the triangle | Widest part of the triangle projected from the breakout level |
| Rectangle | Candle close outside the rectangle in the trend direction | Beyond the opposite side of the rectangle | Vertical height of the rectangle projected from the breakout level |
| Cup and handle | Candle close above the handle resistance line | Below the handle low | Depth of the cup projected up from the breakout level |
Continuation Pattern Example: Bullish Flag on EUR/USD
The following continuation pattern example is a hypothetical bullish flag on the EUR/USD 1-hour chart, with the trend confirmed on the 4-hour chart.
- Trend: On the 4-hour chart, EUR/USD makes higher highs and higher lows and holds above a rising 50-period moving average, which confirms an uptrend.
- Flagpole: On the 1-hour chart, EUR/USD rallies from 1.0800 to 1.0900, a flagpole length of 100 pips.
- Flag: EUR/USD then drifts lower between 2 parallel trendlines for 12 candles, with the flag low at 1.0870, and tick volume falls during the flag.
- Breakout: A breakout candle closes at 1.0895, above the upper trendline of the flag at 1.0888, with tick volume about 60% above the average of the flag candles.
- Entry and stop-loss: The trader buys EUR/USD at 1.0895 and sets a safer stop-loss at 1.0862, a few pips below the flag low, for a risk of 33 pips.
- Price target: The trader projects the 100-pip flagpole length from the breakout level of 1.0888, which gives a price target of 1.0988 and a potential reward of 93 pips.
With a $10,000 account and a 1% risk limit, the trader can lose $100 on the EUR/USD trade. At about $10 per pip on 1 standard lot of EUR/USD, a 33-pip stop-loss allows a position size of about 0.3 lots ($100 ÷ 33 pips ÷ $10 per pip).
If EUR/USD reaches the price target of 1.0988, the 93-pip gain on 0.3 lots is about $279, close to 3 times the planned risk. If EUR/USD falls back through the flag low and hits the stop-loss at 1.0862, the loss stays close to the planned $100, plus any slippage.
What Are the Risks of Trading Continuation Patterns?
Continuation patterns carry 3 main risks: 1) fakeouts, 2) continuation patterns that fail and turn into reversals, and 3) execution risk or slippage when the breakout candle forms in a fast market. Each risk can turn a correct pattern reading into a losing trade, so traders plan for all 3 risks before entering a position.
How to Manage Fakeouts and Fake Breakouts
A fakeout happens when price closes outside the pattern boundary and then quickly moves back inside the continuation pattern, trapping traders who entered on the breakout. Fakeouts are common in choppy markets, in low-volume sessions, and at rectangle and triangle boundaries that many traders are watching.
Traders reduce fakeouts with 4 checks: 1) wait for the breakout candle to close outside the pattern boundary, 2) look for higher volume on the breakout candle, 3) trade only in the direction of a clear trend, and 4) use indicators such as the moving average convergence divergence (MACD) or the average directional index (ADX) to confirm that the trend is strong.
Breakouts during the Asian session on major pairs such as EUR/USD tend to fail more often than breakouts during the London and New York sessions, because fewer traders are active to carry price through the breakout level.
When a Continuation Pattern Fails
A continuation pattern fails when a candle closes outside the pattern boundary against the previous trend. For example, a candle that breaks and closes below the low of a bullish flag shows that sellers have taken control, and the uptrend may be ending.
A failed continuation pattern is an early warning to close or reduce any position that depends on the trend, and some traders treat the failure as a possible reversal signal. Traders still wait for the new trend to show lower highs and lower lows before trading in the opposite direction.
Execution Risk on Breakouts: Slippage, Spreads and Gaps
Slippage happens when an order fills at a worse price than the price the trader requested, and slippage is most common on breakout candles during major news such as US non-farm payrolls or central bank decisions. A buy stop order above a resistance line can fill several pips higher than planned when price jumps through the breakout level.
Spreads can widen around the daily rollover and during thin Asian session trading, which can trigger the stop-loss on a short position even when the bid price on the chart never reached the stop-loss level. CFDs on indices, commodities and shares can also gap over the weekend, so a stop-loss can fill at the Monday opening price instead of the stop-loss level.
Traders limit execution risk in 3 ways: 1) sizing each position from the stop-loss distance so a loss stays within a fixed share of the account, 2) avoiding new breakout entries just before high-impact news, and 3) trading with an ASIC-regulated broker that offers raw spreads and fast execution on MT4 and MT5.
Traders can practise spotting continuation patterns and placing stop-loss orders on a TMGM demo account on MT4 and MT5 before trading with real money. CFD trading involves significant risk and is not suitable for all investors. You could lose more than your initial deposit.
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Frequently Asked Questions
Is a Symmetrical Triangle a Continuation or Reversal Pattern?
A symmetrical triangle can be either a continuation pattern or a reversal pattern, because price can break out of a symmetrical triangle in either direction. A symmetrical triangle breakout usually follows the previous trend, so traders treat the symmetrical triangle as a continuation pattern and wait for the breakout candle to show the direction.
Which Continuation Pattern Is the Most Reliable?
No single continuation pattern is the most reliable in every market. Flags and pennants are often seen as reliable because flags and pennants form during a strong trend and resolve quickly, and any continuation pattern becomes more reliable when it forms after a clear trend and breaks out on rising volume.
What Timeframe Works Best for Trading Continuation Patterns?
Continuation patterns work on any timeframe, from 1-hour charts to daily and weekly charts. Many traders confirm the trend on a higher timeframe, such as the daily chart, and look for the continuation pattern and entry on a lower timeframe, such as the 1-hour or 4-hour chart. Continuation patterns on higher timeframes usually produce fewer fakeouts but need a stop-loss further from the entry, so traders adjust the position size to keep the risk per trade the same.
