This tutorial features bull and bear flags , one of the more common continuation patterns on stock market charts - this tutorial will show you how to tell when a share is going to go up, allowing you to make money from shares.
First, why should you be interested in continuation patterns? If you can see that the price is already going in a certain direction, why do you need to have confirmation of it?
Certainly, continuation patterns are less emphasized than reversal patterns in trading literature. However, they do have a use. If you are already in a trade on the stock, they provide reassurance that the trend will continue and that you can stay in position, expecting greater returns. Also, if you missed out on getting in on the trade at the start of the trend then a continuation pattern is a good place that you can open a trade with confidence, and capture the rest of the move.
That said, what are the most reliable continuation patterns? Arguably, they are the flag patterns, which are temporary retracements in a strong trend. For instance, the bull flag pattern occurs in a strong uptrend. It is when the price reaches a high point, and consolidates in a retracement which is slightly downwards.
Often you can draw a trendline and channel line either side of the retracement, and these parallel lines form what is called the "flag". After a short retracement, the trend usually resumes strongly.
Similarly, you may find bear flag patterns in a downtrend. These can be seen where there is a strong downtrend, which hesitates and retraces back upwards for a short distance. The consolidation represented by this movement against the trend is called the bear flag. It will normally be followed by a continuation of the strong downtrend.
Sometimes the flag patterns are also used to give an indication of how far the trend has to go. Frequently, the trend continuation will go at least the distance of the trend move before the pattern. In other words, the pattern occurs in the middle of the trend.
A flag pattern will usually last between the one and three weeks, and can be regarded as a pause in the trend. It will usually come after a particularly sharp move in the trend, and is almost as if the price has to catch its breath before charging onwards. It is perhaps because the trend is so strong before the flag that the pattern is considered reliable. It would be extremely unlikely that the trend would reverse after the flag.
For confirmation of the flag pattern, you should also look at the volume of trading. You will see a big drop in volume during the course of the flag as the pattern develops. When you come to the end of the pattern, there should be a good increase in volume as the price breaks out.
The characteristics of the flag pattern are that it is slightly countertrend, and it can be contained within a pair of parallel channel lines. It is a short-term pattern, and a strong indication that the trend is set to continue for some time.
cfd trading bücher Most Reliable Continuation Patterns: Bull and Bear Flags | |
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