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Chart Patterns – Continuation

Ascending Triangle – Bullish Continuation Pattern:

The Ascending Triangle is one of the most reliable bullish continuation or accumulation patterns. It is characterized by a series of higher lows failing at a flat top – this means it is a ‘terminal’ pattern – eventually price will have to stop carving higher lows, or more often than not, the top will have to break.

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Just like the reversal patterns discussed in the previous section, the buy signal occurs when the top breaks and the pattern is confirmed.

Descending Triangle – Bearish Continuation Pattern:
The Descending Triangle on the other hand, is a very reliable bearish continuation pattern. The pattern is characterized by a series of lower highs meeting a flat bottom.

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Traders will enter short when the flat bottom is taken out. As we discussed in the Trend Trading section, price can decline quite quickly in a bear market – these patterns often yield impressive moves lower.

Bull Flag – Bullish Continuation Pattern:
Bull Flags or Pennants are an extremely reliable bullish continuation pattern. They are deceptive to the novice trader as price is temporarily trending down, but at a relatively shallow pace. Bull flags are characterized by a series of parallel lower highs and lower lows within a dominant uptrend:

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A buy signal is triggered when the upper parallel is breached.

Bear Flag – Bearish Continuation Pattern:
The last continuation pattern we will look at is the Bear Flag. The opposite of the Bull Flag, characterized by a series of parallel higher lows and higher highs within a dominant down trend:

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Traders will look to enter short once the lower parallel breaks. Just like the Descending Triangle, these patterns can lead to some fierce bearish continuation – in this case, GBPUSD declines over 800 pips in less than a month.

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The Take Away: Chart patterns are often high probability, high reward trades that offer the trade clear entry and stop loss levels. Patterns are confirmed when the relevant line breaks – not before – wait for the breakout.

Again, go back on your MT4 trading platform and see how many of each forex chart pattern you can find.

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