Candlestick charts are popular with traders
who want to identify the market's current sentiment.
Additionally, some traders look for chart patterns
and specific formations in an attempt
to help identify bullish and bearish signals.
These patterns are commonly used by short-term traders,
but they are also used by long-term investors.
In this video, you'll learn about one category
of chart patterns, continuation patterns.
These provide signals that the current trend may continue.
Trading is sometimes compared to a battle between the bulls
and the bears.
Like any battle, there are surges, counterattacks,
and retreats.
Some traders struggle to determine
when one side may be getting ready to attack
or preparing to retreat.
This is where candlestick patterns may help.
For example, the rising three methods pattern
is a bullish continuation pattern.
It suggests that a counterattack by the bears
has failed to significantly impede
the advance of the bulls, and projects a continuation
of the bullish trend.
Here's what this pattern looks like.
It begins with a long white candle,
indicating a bullish rally.
The bears then counterattack, pausing the bulls' advance,
and causing the next three trading
periods to stay the same, or to even decline slightly.
But then the bulls surge forward, and another long white
candle appears.
Once this fifth candlestick appears,
many traders might consider this to be confirmation
that the uptrend will continue.
Therefore, traders may use this pattern to better determine
potential entry points.
The rising three methods can also
be flipped to track the bulls and the bears
during a downtrend.
The falling three methods pattern suggest the bull's
counterattack quickly failed during
a longer-term bearish trend, hinting that the trend will
continue downward.
This pattern goes through the same motions
of a surge, followed by a retreat,
and ending with another surge.
Now, let's look at another continuation pattern, a window.
A window is a gap in price.
This pattern suggests sentiment was so strong,
the price had to make a big jump to find enough traders
to fill the orders.
Whether bullish or bearish, a window
is a sign that sentiment is very strong,
and that the current direction is likely to continue.
Other candlestick continuation patterns
are also characterized by a jump in price.
One example of these is the separating lines pattern.
Let's look at a bullish example.
The pattern begins with a gap up at the opening price.
This gap is then filled in as the price sells off and closes
lower.
However, the next candle opens at very nearly the same price
as the previous day's open and then rallies higher,
forming the separating lines pattern.
Like the other patterns we've reviewed,
this pattern suggests that the bullish trend
is likely to continue.
This shows that the bulls and the bears
were fighting over the same battle lines.
However, one side momentarily surged and then quickly fell
back.
Now onto our final continuation pattern, the kicking pattern,
which combines the window and separating lines patterns.
This time, let's look at a bearish example.
The pattern begins when a single candle moves against the trend.
However, in the next trading period,
the opening price gaps below the opening price
of the previous day.
This results in a window.
Then the trend continues with another long candle.
The large swing in direction shows
the degree to which sentiment is dominating the market.
Surges, counterattacks, and gaps can
help you identify the current sentiment
for a short-term trend.
The ability to recognize these patterns
can help traders determine potential entry and exit
signals.
However, candlestick patterns are usually just one part
of a trading strategy.
Traders commonly use them in conjunction
with support and resistance or other technical tools
to determine trading signals.
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