Chart Analysis · Lesson 15 · Advanced
Continuation Patterns, Triangles and Pattern Morphing
You trade flags, triangles and wedges with a clear measure target and a tight stop and adjust your expectation when a pattern morphs.
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Flags and Triangles
A flag consolidates after a steep flagpole, at most three weeks, volume dries up and rises again at the breakout. Symmetrical triangles carry on the prior trend, the breakout comes at around 73 percent of the way to the apex.
Enter a bull flag the right way
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Morphing
Goodman: patterns are possibilities, not signposts. ETH 2017 morphed from triangle to flag to triangle. Ignore one or two rogue spikes and adjust your expectation instead of holding on to the original pattern.
Trade continuations the right way.
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The key points at a glance
- A flag is half-staff after a steep flagpole, the measure target is half the rise.
- With a triangle always wait for the breakout, do not buy during the formation.
- Patterns morph. Adjust your expectation instead of clinging to it.
Deep dive
Flag or pennant: subtle difference, same target
Both are half-staff patterns after a steep flagpole and last three weeks at most. The flag is a slanted parallelogram, the pennant a small symmetrical triangle. In both, volume dries up and spikes at the breakout.
- Failure rates are low: flag around 2 to 4 percent
- The target is half the prior rise, not the full one
- High and tight flag: rank 1, but price must first double in under two months
Triangles: the apex timing decides
A triangle needs two minor highs and two minor lows and must be crossed several times. The symmetrical triangle should break out at around 73 percent of the way to the apex. If the break comes only at the apex, the power is gone.
- Symmetrical: neutral, only 54 percent follow the prior trend, wait for the close
- Ascending breaks out to the upside 70 percent of the time
- Descending breaks down two thirds of the time
- Busted triangles perform above average
When a pattern morphs: adjust your expectation
In the volatile 24/7 crypto market, a triangle often turns into a flag, then into a rectangle. ETH morphed exactly like that in 2017. Ignore one or two rogue spikes, but if the structure changes fundamentally, change your expectation with it.
Sources: Bulkowski, Murphy, Goodman
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