By
David Dombrowsky

Top 4 Continuation Candlestick Patterns

Published on
March 23, 2023

These are the most popular continuation trading patterns that every trader should know. Check out various continuation patterns and read about bullish and bearish continuation candlestick patterns.

Candlestick charts are a benchmark of Forex trading, one that you must familiarize yourself with to make informed decisions. Continuation patterns occur over some time to indicate asset price movements, market pressures, and volatility.

By displaying how an asset's price moves, candlestick bars and charts relay that information to FX traders as technical analysis. A trader can decrypt fluctuations by reading a few patterns and recognizing significant resistance and support levels.


Why Should You Use Candlestick Patterns When Trading?

To correctly read the market landscape and asset price movements, a trader relies on candlestick bars, which form charts and patterns. It's one of the easiest ways to plot the prices of equities, recognize trends, and predict the market's direction.

Unlike other indicators, namely area, figure, line, and point, candlesticks tell a lot more about aspects of the trend, such as opening and closing prices. Above all, with candlestick charts, you'll gain valuable market psychology insights, especially on investor and trader behavior.

You'll achieve a profitable edge once you understand the market's psychology and that of its participants, which improves your entries and exits.

Contrary to what you may think, candlestick patterns aren't a modern trading innovation, though, as they're thought to have originated in Japan. A rice trader named Munehisa Homma became very wealthy using candlestick patterns in the 1700s.

Steve Nison, the author of 'Japanese Candlestick Charting Techniques, 1991,' is credited with introducing the technical analysis method to the west.


Image showing Japanese candlesticks

Source: https://www.ig.com/en/trading-strategies/japanese-candlestick-trading-guide-200615


How Are Candlestick Patterns Read?

One of the advantages of using candlestick patterns as opposed to other technical analysis measures is that they show you more than an asset's opening and closing prices.

Besides doji, dragonfly, and gravestone bars, candlesticks bars are rectangular. With the color green indicating bullish bars while red is bearish.

You can also read the high and low status of a price opening and closing by the line sticking out. Each end of the candlestick is known as a wick or shadow. These horizontal lines stick out at each of the bar's top and bottom sections, except in the case of Marabozu or shaven head candlesticks.

While it's essential to know the names of different types of candlesticks, you can benefit your trading results by learning the significance of various candlestick charts. To read candlestick bars,

  • The top of the body represents the opening price on bearish bars, while the bottom denotes the same on a bullish candlestick. It's also true for the closing price, which is reflected by the bar's top part in bullish candlesticks and the bottom in bearish ones.
  • The bar's top wick denotes the highest trading price for the asset in any given session. While the bottom reflects the lowest price traded.
  • A candle's location and color will indicate the price direction and the distance between the highest and lowest price. Thus showing that asset's sessional price range.

What is a Continuation Pattern?

An individual candlestick bar makes a chart which ultimately results in a pattern in which a trader leverages insight into market selling and buying pressures along with any indecision. Forex traders are naturally inclined to spot price reversals. So they'll ride a trend further, and skill in using continuation candlesticks comes in handy.

A continuation candlestick pattern is recognizable as it shows a continual current price trend. And you’ll notice attributes such as when an asset skips a price point. These gaps in prices can gap up or down by skipping points forward or downward. Essentially indicating areas of support or resistance.

You must recognize and spot gaps caused by selling and buying interests during market closing hours, over weekends, and after important news events. As such, a gap candlestick pattern indicates the direction of the market plus the sentiments of investors and traders regarding the open-close prices of an asset.

Continuation, one type of gap among others like breakaway and exhaustion. Shows that the price skip occurred in the middle of the trend and closed within two days. In essence, these gaps happen while the asset price is on an uptrend, but only for assets that don't trend for months.


Bearish Continuation Candlestick Patterns

Source: https://forexbee.co/bearish-continuation-candlestick-patterns/


What Are the Top Continuation Candlestick Patterns?

The continuation candlestick pattern signals a prevailing trend once the breakout is confirmed and after a temporary trading pause in the market. It’s the opposite of price reversal points, as they indicate the likelihood of trends continuing in the same, higher direction.

Buyers control the price action as long as an uptrend happens. And bullish continuation candlestick patterns will show a series of higher highs and higher lows. For instance, you can continue holding your position when bullish continuation patterns occur above the market price.

Variety in continuation candlestick patterns means different gaps or market pauses from which to read sideways market movement. You can determine whether the pause in market activity or a short-term trend will resume in its current direction, allowing you to ride it further.


There are several types of continuation patterns.


Gaps

As short-term trading patterns, gaps represent the primary use of Japanese candlesticks alongside other traditional bar charts. When the buyers outnumber sellers during close market hours, a gap will occur at the beginning of the trading session.

While a bearish gap is this configuration but the other way round, there are several types of gap candlestick patterns:


The Tasuki Gap

Known as the upside Tasuki gap, it's a bullish continuation candlestick pattern made up of three bars, with the third bar partially closing the gap. The second candlestick opening is higher than the first one’s closing, and the third opens lower than the second’s closing.

While the third candlestick in a Tasuki gap continuation falls short of closing the gap, the two wicks before the first bar represent the previous trend's price range. The gap is bullish because it signals an uptrend despite the color change from green to red on the last bar.

Besides signaling the asset's uptrend nature, another psychology behind this continuation candlestick pattern is that the bears step in. That's when a downside Tasuki gap happens after bulls have been in firm price point control. The bulls, however, return in force after the third candlestick price pushdown. And the market closes higher than its lowest point.


Downside Tasuki gap candlestick pattern

Source: https://forexbee.co/downside-tasuki-gap-candlestick-pattern/


Gapping Play

A gapping pattern involves a large-bodied candlestick followed by two or three small-bodied candles. Whether high in an uptrend or low in a downtrend, the last candlestick is another long-bodied bar in that same direction after a gap.


Side By Side, White Lines

The side-by-side white lines gap continuation pattern features a similar 3-candle arrangement as the upside Tasuki gap, but the third candlestick follows the direction of the last two. All the bars in this technical analyzer are green, signifying the bulls control the asset's price points.

Two white lines before the side-by-side continuation pattern reflect the price range on that uptrend. The psychology behind the third candlestick gapping up slightly is that bears have stepped in to test the bull’s strength, but they weren't ready to relinquish price point control.


Three White Soldiers and Three Black Crows

An easy-to-spot pattern features three short wicked candles in a row, and the 3 white soldiers are bullish while the black crows are bearish. The three white soldiers pattern is interpreted to mean the trend has strong momentum and is likely to continue, despite showing signs of exhaustion.


Three white soldiers pattern formation

Source: https://www.adigitalblogger.com/chart-patterns/three-white-soldiers/


Three soldiers' pattern is also called the three-line strike. A bullish gap that appears when the second candle’s opening is higher than the previous candle’s closing. However, its low doesn't reach the level of the first candlestick.


The Rising Three and Falling Three Method

One large bullish candle followed by three bearish bars in the opposite direction signifies a rising or falling-three method of continuation patterns. A third large-bodied candle matches the first one in size, color, and directio. And the variation of this pattern is called the Mat Hold.


Separating Lines Pattern

Separating lines patterns features a first candlestick opening against a prevailing trend, while another candle opens at the first's price. It is also called the Thrusting Line method with variations, such as reversal and continuation candlestick patterns create an internal gap. And two lines before the bars represent the asset's price range.


Bottom Line

You'll often use candlestick patterns alongside technical analyzers like moving averages to support your buying or selling decisions. Continuation candlesticks patterns will help you identify the gaps in the market on which you can read the price movement and indecision on neutral.

After robust directional moves, a gap or continuation candlestick pattern may indicate the acceleration of a trend. While not prone to false signals, trends often last longer and offer buy or sell opportunities than reverse patterns.


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