Continuation Pattern

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Continuation Pattern is named a consolidation pattern too. This is an Area Pattern that breaks out in the course of the preceding tendency ( R.D.Edwards, C.H.W.Bassetti, J.Magee 2012, p.545). A continuation pattern is when a share price continues in the equal path. This involves any course from the present opening position in which a trend can be followed. This type of pattern is nothing more than a sequel in the improvement of ups and downs on a shared graph, and regularly shows a continuation of the dominant aim in asset value. Continuation patterns are a stop in the price action of a stock, and they frequently happen mid trend ( J. Moore 2018, chap.8). In the graphs, there is additionally a reversal pattern. This kind of pattern easily determines that continuation is in a dynamic method ( M.Hooper 2008, p.239). Patterns of continuation lead to be quite short-term, occasionally just several days, and are frequently forgotten as a result ( B.Rockefeller 2014, p.154)

Forms of Continuation Pattern

The most common types of primary Continuation Patterns are (Wiley 2019, p.36-38) :

  • Triangles lead to be more generous structures that occur completely a trend. There are three kinds of them:
  1. A symmetric triangle is made by a price compression when the uncertainty of customers and merchants effects in reducing instability in such a way that rewards close to the center of the preceding trading range. The symmetric triangle is most likely to befall at the start of a trend when there is higher precariousness about the area.
  2. A descending triangle is formed by the current course form a short support level, and costs may rebound off that step while short-term tradesmen work for little profits.
  3. An ascending triangle can be defined as a horizontal in an upwards trend. This type is made by a continuation after the descending triangle.
  • Flags are smaller models than triangles. This type is created by an improvement in a bull movement or a rally in a market slump. A flag is a congestion space that tends away from the way of the trend and typically can be separated by two parallel lines between the top and bottom of the structure.
  • Pennants are irregular triangles usually tending to the trend, comparable to a descending triangle in a downward trend but without a top assistance line.
  • Wedges are patterns that look like large pennants, with top and bottom line angling in an identical way but does not spread to a spot. Wedges can be falling or rising.

The larger structures of these models are more significant than the smaller forms ( Wiley 2019, p.36).

Examples of Continuation Pattern

  • The most common example of a continuation pattern is a flag pattern. A flag pattern is a technical charting pattern that is characterized by a small consolidation period that is followed by a continuation of the prior trend. This pattern typically includes two parallel trendlines that form a flag or pennant shape. The first trendline marks the start of the consolidation period, and the second trendline marks the end of the consolidation period. Once the price breaks out of the consolidation period, it typically continues in the same direction of the prior trend.
  • Head and Shoulders is another example of a continuation pattern. This pattern is made up of several peaks and troughs that form a distinctive shape. It is characterized by three peaks, with the middle peak being the highest and the other two being lower. This is usually followed by a break of the neckline, which signals a continuation of the prior trend.
  • The double bottom pattern is another example of a continuation pattern. This pattern is characterized by two successive bottoms that form a “W” shape. The first bottom marks the start of a consolidation period and the second bottom marks the end of the consolidation period. Once the price breaks out of the consolidation period, it typically continues in the same direction of the prior trend.

Advantages of Continuation Pattern

The advantages of a continuation pattern in economics are numerous and include:

  • Improved efficiency of resource allocation: By allowing producers to anticipate economic trends and adjust production accordingly, a continuation pattern helps ensure resources are being allocated efficiently.
  • Increased predictability of market trends: Continuation patterns provide insight into the direction and duration of market trends, allowing investors to make more informed decisions.
  • Improved accuracy of forecasting: By providing a basis for predicting future economic activity, continuation patterns can help economists and businesses make more accurate forecasts.
  • Increased stability: The existence of a continuation pattern can often help stabilize markets and prevent sudden and drastic changes in prices.
  • Improved risk management: By providing a framework for understanding economic cycles, continuation patterns can help businesses and investors manage their risk.

Limitations of Continuation Pattern

One of the main limitations of the continuation pattern of economic activity is its inability to accommodate rapid changes in the economic environment. Such limitations include:

  • A lack of flexibility, as the continuation pattern does not take into account sudden changes in the economic environment. This can lead to inefficient resource allocation and inadequate responses to economic shocks.
  • The continuation pattern is based on historical data, and thus may not adequately reflect the current economic conditions. This can lead to decisions being made on faulty assumptions and outdated economic models.
  • The continuation pattern does not take into account the impact of external factors on the economy, such as technological advancement, geopolitical changes, and natural disasters, which can all have a significant effect on the economy.
  • The continuation pattern can sometimes lead to an over-reliance on past performance, which can lead to a failure to anticipate and plan for future trends in the economy.
  • Finally, the continuation pattern may not be able to adequately account for the unique circumstances of each individual market or industry, which can lead to inefficient or inadequate economic strategies.

Other approaches related to Continuation Pattern

Other approaches related to the Continuation Pattern are:

  • Game Theory: Game Theory is an interdisciplinary approach that studies strategic decision-making. It is widely used in economics to model the interactions between different economic agents, such as firms, workers, and consumers.
  • Behavioral Economics: Behavioral Economics is a field of economics that studies how people make decisions, particularly in situations with incomplete information or when there are multiple options. It focuses on the cognitive and emotional processes that influence decision-making, and how these processes can be used to inform economic policy.
  • Experimental Economics: Experimental Economics is a field of economics that uses laboratory experiments to study economic behavior. It is used to test economic theories and to understand the behavior of economic agents in different markets.
  • Econometrics: Econometrics is a field of economics that uses statistical methods to study economic data. It is used to analyze data to test economic theories and to estimate the effects of economic policies.

In summary, other approaches related to the Continuation Pattern are Game Theory, Behavioral Economics, Experimental Economics, and Econometrics. These approaches help economists to better understand economic behavior and to inform economic policy.


Continuation Pattern — recommended articles
Strategic scenarios method — Tape Reading — Perfect information — Base effect — Trading channel — Bear flag — Golden hammer — Forecasting — Overbought oversold indicator

References

Author: Paulina Zając

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