Continuation and bilateral patterns: the profile library

Consolidation and its forms

This library collects the continuation and bilateral patterns as profiles. They are consolidations from which price mostly breaks out in the direction of the prior trend. You learn the principle and the measure logic in ct-continuation-muster, here it is about recognizing and trading them.

The trade rule is similar across all patterns: wait for the close out of the pattern, demand a rise in volume and use the retest of the broken edge as a second chance. Never buy during the formation.

Flat upper edge, rising lows. The ascending triangle usually breaks out upward. Entry on the close above the flat upper edge with volume, stop below the last rising low. A break without volume is suspect.

The mirror image: flat lower edge, falling highs, usually a break downward. Entry on the close below the flat lower edge, stop above the last falling high. Here too, volume confirms the break.

Falling highs and rising lows converge toward an apex. The symmetrical triangle is bilateral, it does not dictate the direction itself but mostly follows the prior trend. The breakout typically comes before the apex is reached. Only trade the close out of the triangle.

The falling wedge drops with converging lines and is predominantly bullish, often the consolidation within an uptrend. Entry on the close above the upper wedge line with volume. Wedges belong overall to the less reliable patterns, be strict with the confirmation.

The rising wedge climbs with converging lines and is predominantly bearish, even though it points upward. That is exactly what makes it tricky: the shape looks bullish, but the break mostly comes downward. Wait for the close below the lower line before you short it.

A short consolidation, slightly tilted against the trend, after a steep rise. Volume dries up in the flag and rises again at the breakout. Entry on the close out of the flag, target the half of the prior rise (half-staff), stop below the flag.

The bearish counterpart after a steep sell-off: a short consolidation, slightly tilted against the trend, then a break downward. Entry on the close out of the flag, stop above the flag, target likewise the half of the prior sell-off.

The pennant is the triangular sister of the flag: a tiny symmetrical consolidation after a strong impulse. The trade logic is the same as for the flag, breakout with volume and half-staff target. The pennant is short-lived, if you miss the breakout the move is often already over.

The rectangle is a clean range between horizontal support and resistance. You can trade the edges or wait for the breakout. As a continuation pattern it usually breaks in the trend direction. The target is the height of the rectangle, projected from the broken edge.

The price channel is two parallel trend lines between which price runs. As long as the channel holds, you trade the move from edge to edge in the trend direction. The break out of the channel on a close is the signal for an end or an acceleration of the trend.