Are continuation patterns useful in forex trading and stock trading?
A:
Technical analysts and traders use the term “continuation pattern” to describe seemingly random price movements that can be interpreted to mean a current larger trend is likely to continue. They are useful for any trading instrument, including forex and stock patterns, that can be plotted on a price chart. There are a few major types of continuation patterns, flags, triangles and channels, and many subtype varieties. However, all continuations patterns suggest that current price action is only a momentary pause in a broader trend.
Continuation patterns appear on charts of any time interval, from intraday to multi-year. Even though not all patterns prove to be correct, the ability to spot and interpret a continuation pattern is a fundamental skill of any technical trader.
Stocks exhibit trading patterns based on the supply and demand, or buyer volume and seller volume, of the security. The pattern highlights trader sentiment and offers potential exit and entry opportunities that might not otherwise be seen. Forex trading is only a little more complicated, but the actual process of identifying patterns is no different in the forex market than in any other.
There are both bullish and bearish continuation patterns. Any given pattern is not considered complete until the price has “broken out” of the pattern and resumed the preceding trend. There are plenty of false breakouts, or apparent patterns that form but still lead to a trend reversal. Also, despite their widespread appearances, continuation patterns are still somewhat subjective. To combat possible false patterns, traders use other technical indicators and even fundamental analysis to help confirm a forming continuation pattern.
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Are continuation patterns useful in forex trading and stock trading?
