16. Continuation Patterns

Charting imitates life: Price Patterns and Road Trips

Road trips are some of our favorite vacations. You jump in the car, head out on the open highway and soak in all of the scenery that you miss when you fly somewhere. Of course, every once in a while you have to interrupt your cruising to take a pit stop---to put some gas in your car and buy some snacks.

Pit stops are part of the adventure. And let's face it, driving would get pretty old after a while if you didn't stop and take a break every now and then. At the same time, nobody wants to spend their entire vacation at the rest stop. So once you've had a chance to stretch your legs and fill up the gas tank, you jump back into the car and head back out on the open road.

Currency pairs take exciting road trips all of the time. They cruise along for a while---passing support and resistance levels and other significant price points along the way---but every once in a while, they need to take a pit stop. After big price moves, the traders who are pushing these currency pairs higher and lower have to stop to catch their breath. Don't get too comfortable though. The pit stop isn't going to last forever.

If the currency pair really is in the middle of a road trip, a continuation pattern will form while the currency pair consolidates in its pit stop. Continuation patterns tell you that the currency pair is going to resume its previous trend after it breaks out of the continuation pattern.

Identifying continuation patterns

Continuation patterns, like all price patterns, are made of the following four pieces:

Old trend: the trend that the currency pair is in as it starts to form the price pattern

Consolidation zone: a constrained area defined by set support and resistance levels

Breakout point: the point at which the currency pair breaks out of the consolidation zone

New trend: a resumption of the old trend that the currency pair enters as it comes out of

the consolidation zone

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