Continuation Patterns in Crypto
Continuation patterns are a feature of financial asset price charts. They are commonly used in crypto trading, but are an essential part of price analysis for all financial assets.
These patterns, or structures, appear as shapes on the chart itself, and are formed by price action. With vary degrees of certainty, they can point the way to what might happen to a given asset in future — hence their name.
Continuation patterns are ubiquitous, and apply to both bull and bear markets, long and short timeframes. Bitcoin and altcoins provide an excellent opportunity to utilize them.
An Introduction to Continuation Patterns
Continuation patterns are not a trading strategy or instrument in themselves; they provide a frame of reference for price behavior as part of chart analysis.
Over time, it has been shown that certain structures or shapes, when applied to a chart, preempt a certain result for the asset being analyzed. As such, they can help a trader to define the validity of a trend, or perhaps whether one trend is ending and a different one is due to begin.
There are a number of popular continuation patterns in regular use. Each of these infers a different message about price action, and this depends on the overall trend.
Continuation patterns are not infallible and do not provide guarantees. The strength of their signals depend on the specific asset’s track record — the more successful signals in the past, the more likely it is that a repeat appearance of a given pattern will see the same result.
Bullish Continuation Patterns
The continuation patterns below have a specific meaning within a bull market or uptrend; their appearance within a downtrend gives different signals (see the relevant section of this guide).
Pennants, wedges, triangles, flags and rectangles can all be applied to uptrends.
A bullish flag, or simply bull flag, is a continuation pattern found in a strong uptrend. It is so called due to resembling a flag on a flagpole.
Bullish flag pattern on TabTrader Web.
In the chart above, price rises along the pole, enters the flag section, then exits to the upside. This is a classic bull flag setup — the flag section represents a period of consolidation within the overall uptrend, which is a healthy sign for an asset in a sustainable bull market.
In an ideal setup, the subsequent upside is roughly equal to the length of the flagpole. This is not guaranteed, however, as a vast array of factors can determine when an uptrend concludes.
A bullish pennant sees price acting within a narrowing wedge shape as part of consolidation within an uptrend.
Here, volatility gradually cools — with each candle covering a progressively smaller range — until price breaks out of the structure to the upside, leaving its consolidation range behind and continuing the uptrend.
As with flags, a ‘pole’ can be attached to the pennant to give a rough idea of expected upside to come, but this outcome is likewise not guaranteed.
The falling wedge pattern is a very similar phenomenon to the bullish pennant, with minimal differences between them from the point of view of price action in an uptrend. A wedge features steeper sloping price action, while a pennant is flatter.
BTC/USD bullish pennant structure on TabTrader Web.
Bearish Continuation Patterns
Some uptrend continuation patterns have direct complementary iterations in downtrends.
In particular, the bull flag and bullish pennant can be found in the opposite formation when an asset is headed lower.
Bearish flags, or simply bear flags, mimic bull flags but slope upward instead of downward. They signal a period of relief during a downtrend, and should likewise resolve with continuation of the prior trend direction.
The flagpole and flag sections are visible, and operate just as bull flags do, but in the opposite direction.
BTC/USD bear flag on TabTrader Web
Bearish pennants can also be found during a cooling-off period within an overall downtrend. Here, price begins a relief move higher, with volatility and momentum gradually waning before a breakdown from the structure continues the prior trend.
BTC/USD bearish pennant on TabTrader Web
Other Key Crypto Continuation Patterns
Not all continuation patterns strictly show whether a trend is about to resume and how far it might do so.
If you're eager to learn more about classical chart patterns, explore our dedicated Academy article for in-depth insights and expert guidance.
Certain structures conversely warn of an impending trend change or lack of momentum, and are known as reversal patterns. Trading within these structures carries additional risk — confirmation of a trend reversal or resumption is required to minimize potential losses.
A rectangle is the result of price moving in a horizontal range so that two horizontal lines can be drawn between swing highs and lows.
Likewise a form of consolidation, rectangles can be used for entries once price exits the upper or lower line. Trading within a rectangle structure is riskier, however, as price may not always hit the upper or lower line before reversing.
Periods of horizontal price action can signal the end of a given trend. In the example below, BTC/USD forms a long-term bottom before beginning a new uptrend.
Long-term downtrend reversal points such as the one shown also contain a key component of the Wyckoff method called the ‘Spring’. For more information on Wyckoff and how to trade with it, see TabTrader’s dedicated guide.
BTC/USD rectangle structure on TabTrader Web
A triangle will initially appear similar to a pennant on a price chart, but there are subtle differences.
A triangle can mark a consolidatory period in situations where an uptrend is less visible, and can occur without the ‘flagpole’ which precedes a pennant. Duration is also a differentiating factor — triangle patterns can take much longer to play out than pennants.
Price may break out of a triangle before its two sides meet, a place called the apex. Bullish continuation will see a breakout to the upside to continue the trend.
There are several types of triangle: ascending, descending and symmetrical. They can all occur under any trend circumstances, but ascending and descending are more common in uptrends and downtrends respectively.
An ascending triangle has a horizontal top side and a rising bottom side, with the reverse true for descending triangles.
As an example, in a bearish descending triangle, price repeatedly tests support while making a series of lower highs, indicating waning momentum and buyer appetite. A bullish triangle will display the opposite features — consistently higher lows while price attempts to overcome overhead resistance.
Pros and Cons of Trading Crypto With Continuation Patterns
Continuation patterns are a core component of any crypto trading strategy. Analyzing market structures and comparing them to similar events in the past allows traders to understand likely future price scenarios.
Here, however, it is important to note that different patterns can provide different signals depending on their position within the overall trend.
In addition, in some circumstances, an asset will not behave as expected — continuation patterns in and of themselves provide no guarantee of what will happen next.
There can be various reasons for this; crypto markets are notoriously volatile, and surprises can occur at any stage — even within more established assets such as Bitcoin and Ethereum. External volatility triggers which upend the trend across crypto are also apt to distort signals previously given by continuation patterns.
These chart features thus need to be used in conjunction with reliable market indicators as part of a wider trading strategy. Relying on a given structure’s appearance on a chart is insufficient as a signal to enter or exit a trade.
Among the most popular indicators in daily use by TabTrader investors is the Ichimoku Cloud — a comprehensive trading tool focusing on timing market entries and exits. See the dedicated TabTrader Academy guide on Ichimoku for more information.
Trading crypto would be all but impossible without confirmation patterns. They make sense of price action over both long and short timeframes and form an essential part of trend recognition.
Continuation patterns can tell a trader what is more or less likely to happen to an asset’s trend based on current price action. They also forewarn of a trend change or breakdown in addition to suggesting how much further a given trend may run should it continue.
Despite this, trading simply on the basis of chart shapes does not constitute a strategy in itself. Continuation patterns need to be used in conjunction with indicators as part of an overall approach to volatile crypto markets.
TabTrader combines the world of professional trading — chart shapes for identifying continuation patterns, indicators and more — with access to the world’s biggest crypto exchanges. The TabTrader terminal, whether for iOS, Android or Web, gives users the power to trade simultaneously on dozens of major platforms in one place — from anywhere.
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What is a continuation pattern in crypto?
Continuation patterns are a chart feature which generally signals that the trend in which they form is due to continue playing out. Different shapes offer different signals based on the trend in play, with varying degrees of certainty depending on the circumstances.
What is the most reliable continuation pattern?
Continuation patterns are frequent but not always guaranteed to predict the future of a trend correctly. A brief continuation pattern occurring within a strong trend has a better chance of playing out than an extended structure which erodes the trend over time.
Is consolidation a continuation pattern?
Continuation patterns are de facto periods of price consolidation within a broader trend. In order to determine the pattern in play, however, it is necessary to identify what is happening with price using technical analysis — establishing swing highs and lows, volume and historical price performance at similar levels in the past.
What is the difference between continuation and reversal?
Continuation refers to an asset’s price trend extending after a period of consolidation. Reversal, on the other hand, implies that a given trend is due to change direction altogether based on price action observed within the reversal pattern.