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How to ‘predict' future trading profits using a continuation pattern

by , 06 July 2015

Technical analysis involves using price charts to predict where the price of an asset will go. This type of analysis works well for a number of different assets, including shares, commodities and indices.

Studying charts can give you a good indication of what lies ahead. And certain patterns have a tendency to play out the way they have in the past.

If you want to check if a trend is going to continue, you can use continuation patterns. Continuation patterns include flags.

Let's take a closer look at how you can use flags to help you make money trading…

How to check an uptrend is going to continue

A useful continuation pattern to use to check if a trend is going to continue is flags. You can use this pattern to indicate whether an up or down trend is going to keep going.

These patterns appear during some temporary sideways price action before a trend continues. In other words, these patterns emerge before a trend resumes.

These patterns tend to mark a period of time when the price bounces about within a defined range and not with the trend.

Not only can these patterns give you confirmation that a trend is going to continue if you’re already in a trade, you can use these patterns as a signal to enter a trade.

If you initially missed a strong trend, a continuation pattern tells you there’s a good chance the pattern is going to continue, allowing you time to enter a trade.

The bull flag is a popular and effective continuation pattern

Have a look at the chart below of a bull flag pattern…

Chart of a bull flag pattern

You’ll see a bull flag pattern when the price of an asset is in an uptrend. This pattern suggests the trend is going to continue upwards, Frank Hemsley in Profit Watch explains.

A bull flag pattern shows an overall bullish trend where the price pauses or consolidates for a while before breaking out and heading higher again.

The pattern slopes downwards. This is because the first move higher was on high volume. The fall shows where there is a drop in volume and the sellers start to gain the upper hand.

The buyers then pile in. This leads to the price breaking out of the downward trend and resuming its upward trend.

So there you have it. How to ‘predict’ future trading profits using a continuation pattern.

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How to ‘predict' future trading profits using a continuation pattern
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