Chart school · lesson 8 of 10

Continuation chart patterns: flags, pennants, triangles, rectangles

A trend does not run without stopping. Continuation patterns are the shapes a price draws while it rests.

The idea

After a strong move, the price often goes quiet for a while: the swings get smaller and drift sideways or slightly against the move. Textbooks class these pauses as continuation patterns, because the earlier trend frequently resumes afterwards.

Frequently is not always. Each of these shapes can also break the other way, and when it does it stops being a continuation and becomes a reversal. The class is a habit of naming, not a rule the market keeps.

8.1Usually read as bullish

Bull flag

What it looks like: A sharp, nearly straight rise called the pole. Then a short, narrow channel that slopes slightly down against it: the flag. The flag is small compared with the pole.
What traders read into it: After a fast rise, some buyers take profit and few sellers arrive. Traders read the shallow, orderly drift as a rest, and watch for a break above the flag.
Where it fails: A flag that goes on too long, or falls back through much of the pole, is no longer a flag. And a pole is only obvious afterwards; chasing every fast rise in the hope of a flag is an expensive habit.

The bull flag, in the pattern library

8.2Usually read as bearish

Bear flag

What it looks like: A sharp fall, then a short, narrow channel that slopes slightly upwards against it.
What traders read into it: After a fast fall, the bounce is weak and orderly. Traders read it as a rest in the selling, and watch for a break below the flag.
Where it fails: A bounce that recovers a large part of the pole is not a flag. A sharp fall can also be followed by an equally sharp recovery.

The bear flag, in the pattern library

8.3Read either way

Pennant

What it looks like: A pole, as with a flag, followed by a small triangle: a few swings, each narrower than the last, between two converging lines.
What traders read into it: The same rest as a flag, drawn tighter. Traders watch for the price to leave the triangle in the direction of the pole.
Where it fails: A pennant is small and quick, so it is easy to imagine one in any brief pause. If it grows large it is a triangle, and a triangle gives less of a hint about direction.

The pennant, in the pattern library

8.4Usually read as bullish

Ascending triangle

What it looks like: A flat line of resistance above, and a rising line under higher and higher lows. The swings narrow towards the flat top.
What traders read into it: Sellers hold one price while buyers pay more on every dip. Traders read the rising lows as pressure building against the level.
Where it fails: Pressure is not a result. If the rising line breaks first, the triangle has failed downwards. Breaks through the flat top also fail and fall back inside.

The ascending triangle, in the pattern library

8.5Usually read as bearish

Descending triangle

What it looks like: A flat line of support below, and a falling line over lower and lower highs. The swings narrow towards the flat floor.
What traders read into it: Buyers hold one price while sellers accept less on every bounce. Traders read the falling highs as pressure building against support.
Where it fails: If the falling line breaks first, the pattern has failed upwards. A support level that has held many times in a row can also simply hold again.

The descending triangle, in the pattern library

8.6Read either way

Symmetrical triangle

What it looks like: Lower highs and higher lows together. The upper line falls, the lower line rises, and the swings shrink towards the point where the lines would meet.
What traders read into it: Neither side is giving way, and the range is closing. Traders read it as a decision being postponed, and wait to see which line breaks.
Where it fails: It says the least about direction of any pattern here. It breaks either way, and textbooks treat a break that comes very near the point of the triangle as a weak one.

The symmetrical triangle, in the pattern library

8.7Read either way

Rectangle

What it looks like: A range inside a trend: the price moves sideways between a flat resistance line and a flat support line, touching each at least twice.
What traders read into it: A rest at one price area. Traders watch the two lines, and take a close outside either as the end of the pause.
Where it fails: A rectangle is a range, and a range breaks in whichever direction it breaks. Calling it a continuation before the break is a guess.

The rectangle, in the pattern library

8.8Usually read as bullish

Cup and handle

What it looks like: A rounded fall and recovery back to the earlier high: the cup. Then a smaller, shallower dip near that high: the handle. The line across the two highs is the rim.
What traders read into it: The price came back to its old high, was not sold hard there, and gave up only a little. Traders read a break above the rim as the earlier rise resuming.
Where it fails: It needs many candles and a generous eye. A handle that sinks deep into the cup is not a handle, and a break of the rim can fail like any other breakout.

The cup and handle, in the pattern library

SimulationEvery drawing is invented to show a shape as plainly as possible. None of them is a market, and a real chart is rarely this tidy. Educational information, not investment advice or a recommendation to trade.

To carry away

Lesson 8, in four lines.

01
A continuation pattern is a pause: smaller swings after a strong move.
02
Flags and pennants are small and quick. Triangles and rectangles are larger and slower.
03
The shape is finished only when the price closes outside it.
04
Any of them can break the other way. The name is a class, not a promise.

Check yourself

Three questions on this lesson.

Choose an answer and press Check. You can try each as often as you like. No answer is stored, nothing is sent anywhere and no score is kept.

Question 1 of 3
What comes before a flag or a pennant?
A long sideways rangeA sharp, nearly straight move called the poleA double top
Question 2 of 3
What are the two lines of an ascending triangle?
Two rising linesA falling line above and a rising line belowA flat line above and a rising line below
Question 3 of 3
A rectangle forms in an uptrend. Which way will it break?
It cannot be known until it breaksUpwards, because the trend is upDownwards, because the price has stalled

An explanation for study. It is not advice, a recommendation or a forecast. No pattern is reliable on its own, and a shape described here says nothing certain about what a price will do next.

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose.

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The idea of this lesson

Lesson 8, in four lines.

Three questions on this lesson.

The idea of this lesson

Lesson 8, in four lines.

Three questions on this lesson.