REVERSAL AND CONTINUATION PATTERNS ⚡️

22 oct. 2022

Chart patterns are visual representations of price action. Chart patterns can show trading ranges, swings, trends, and reversals in price action. The signal for buying and selling a chart pattern is usually a trend line breakout in one direction showing support or resistance is overcome at a key level. Stop losses are usually set on retracement back inside the previous range and profit targets are usually set based on the magnitude of the previous move leading into the pattern.

Many people think of chart patterns as bullish or bearish but there are really three main types of chart pattern groups: reversal chart patterns, continuation chart patterns, and bilateral chart patterns. Understanding the differences is important for traders to understand the path of least resistance on a specific chart based on the primary sentiment of the buyers and sellers price action.

Well in this article we will discuss the Reversal chart patterns and the Continuation chart patterns.

Reversal chart patterns

Reversal patterns happen when a chart has a strong break from its current trend and its momentum reverses course. These patterns show that a trend is coming to an end and the price action is moving in a new direction away from the previous range or direction. These patterns go from bullish to bearish or bearish to bullish. They can take longer to develop than other types of chart patterns.

Now I'll show you how the 3 Bullish and Bearish patterns shown in the picture in this Education post.

Double TOP and BOTTOM:

Well for this first pair of patterns, I have already made a very nice and detailed explanation here in Tradingview, follow the link :)

Click Below in the picture.

Head & Shoulder and Reversal H&S

A head and shoulders pattern used in technical analysis is a specific chart formation that predicts a bullish-to-bearish trend reversal. The pattern appears as a baseline with three peaks, where the outside two are close in height, and the middle is the highest.

The head and shoulders pattern forms when a stock's price rises to a peak and then declines back to the base of the prior up-move. Then, the price rises above the previous peak to form the "head" and then declines back to the original base. Finally, the stock price peaks again at about the level of the first peak of the formation before falling back down.

The head and shoulders pattern is considered one of the most reliable trend reversal patterns. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end and vice versa.




and Viceversa the reversal will look like this




Reversal Rising Wedge and Falling Wedge

A wedge pattern can signal either bullish or bearish price reversals. In either case, this pattern holds three common characteristics: first, the converging trend lines; second, a pattern of declining volume as the price progresses through the pattern; third, a breakout from one of the trend lines. The two forms of the wedge pattern are a rising wedge (which signals a bearish reversal) and a falling wedge (which signals a bullish reversal).

Rising Wedge
This usually occurs when a security’s price has been rising over time, but it can also occur in the midst of a downward trend as well.



Falling Wedge



Continuation chart patterns

Continuation patterns signal that the current trend is still in place and it’s about to resume going in the same direction after a trading range has formed. These types of patterns usually form consolidations in price action to let buyers and sellers work through supply and demand before moving higher or lower like the previous trend leading into the range. These are the most popular classic bearish and bullish chart patterns.

Continuation Falling Wedge

The falling wedge pattern is a continuation pattern formed when the price bounces between two downward-sloping, converging trendlines. It will follow the impulse trend, so a Bullish trend will continue in the uptrend and Vice-versa for il downtrend.





And Vice versa the Rising Wedge




The Bullish and the Bearish Rectangle

A rectangle is a pattern that occurs on price charts. A rectangle is formed when the price reaches the same horizontal support and resistance levels multiple times. The price is confined to moving between the two horizontal levels, creating a rectangle.

Bullish Rectangle



Bearish Rectangle:



Bullish and Bearish Pennant

In technical analysis, a pennant is a type of continuation pattern formed when there is a large movement in a security, known as the flagpole, followed by a consolidation period with converging trend lines "the pennant" followed by a breakout movement in the same direction as the initial large movement, which represents the second half of the flagpole.

Some examples:





Hope this post will help you to understand the difference between some examples of the most common reversal and continuation patterns.