Continuation Patterns in Forex

A Continuation pattern in one situation can be a Reversal in another. Being able to recognise both doubles your opportunities as a trader…

The same set of forex candlesticks can represent either a trend reversal or a trend continuation. The simplest way to explain this is to give a specific example via two chart patterns. The two following diagrams show the bearish engulfing candlestick pattern at work in an uptrend and a down trend. The first illustration shows price topping out at the extremes of an uptrend:

Bearish Engulfing Confirms Trend Reversal Pattern

You can see that price has been in a sharp move upwards and has peaked at the upper band of the Bollinger bands. The bearish engulfing pattern is completed by the second candle. This is an example of a forex candlestick pattern representing a trend reversal. However, the same pattern can occur in a down trend.

Have a look at the second illustration:

Bearish Engulfing Confirms Trend Continuation

Once more we have the same engulfing pattern occurring, but this time it signifies a continuation pattern. This is obvious from the fact that price is in a down trend shown by the series of lower lows being set from the left of the chart. When the second bearish candle engulfs the first at the mid-band of the Bollinger bands, the pattern is confirmed.

Every forex candlestick pattern can be used in this way, as either confirming a trend continuation or signifying a reversal of price at the highs. It is good practice if you are new to forex trading to go through a series of charts looking for examples of continuation patterns and reversals, for each of the forex candlestick patterns. This will stand you in good stead when scanning charts for setups and opportunities.