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Price Action

Continuation Patterns vs Reversal Patterns

Every chart shape belongs to one of two families, and one question sorts them: did the price leave the shape the way it arrived, or the other way? This paper shows you the same pause with its two exits, the question as a signpost, a real continuation on the Nasdaq and a real reversal on gold, and how to put two charts side by side on your platform to compare them.

Difficulty
Intermediate
Reading time
5 min
Pages
8
Reviewed by
Saman Rahbar

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The same pause, two ways out

A continuation pattern and a reversal pattern can look the same while they are forming. In both, a move arrives, and the price goes sideways for a while in a shape — a flag, a rectangle, a triangle, three peaks. What names the shape is the way out. If the price leaves the way it came in, the shape was a continuation: a landing between two flights of stairs. If it leaves the other way, the same shape was a reversal: a summit, or a valley floor.

The one question

So there is one question, and it is asked after the shape is over. Which way did the price leave, compared with the way it arrived? The move before the shape sets the direction the question is measured against; the move after gives the answer. Same way, continuation. Other way, reversal. The names belong to the exit, not to the shape, which is why the same rectangle can be one on one chart and the other on the next.

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