Before getting the start, we need to know what continuation patterns are. And how they are connected to bearish continuation candlestick patterns.
A price chart related to stock shows random movements to the trader. Those patterns of charts are geometrical in shape and are found in the data of price. They usually assist the trader in understanding price action. Through those charts, a trader predicts the price. He foresees whether it is going upward or downward. Traders assume that if continuation patterns occur, the price trend will continue, but experts don’t rely on patterns for different predictions.
Continuation patterns are signs that price trends will keep on going. Traders often spot continuation patterns in the mid of a going trend, and they infer that the trend will recommence after the completion of patterns. The basic idea at the back of continuation of patterns is that there are higher chances of continuation of a trend in the same direction and lower chances of a reversal of the trend. Buyers remain in control of the action of price until an uptrend occurs.
Continuation Patterns
The following are the continuation patterns:
- Temporary pause
- Strong trend
- Breakout
The temporary pause can be formed in different ways. Some of the popular temporary pauses are pennants, triangles, flags, and rectangles. Particularly, the identification of strong trends is very necessary for the activation of continuation patterns. Additionally, a breakout helps in stopping the loss and earning profit.
Division of continuation patterns
Continuation patterns are divided into the following two types:
- Bullish Continuation formation
- Bearish continuation formation
1. Bullish Continuation
There are five main bullish continuations, I.e. expanding triangle, symmetrical triangle, ascending triangle, bullish flag, bullish pennant, cup, and handle. They have a strengthening phase, and a second comes to a phase of breakout.
2. Bearish Continuation
In bearish continuation, there is the beginning of prices with a decline, the sideways phase comes, and then the phase of breaking down. There are five main bearish continuation patterns as well. I.e. expanding triangle, symmetrical triangle, descending triangle, bearish flag, bearish pennant.
Candlestick pattern
Candlestick charts are scientific tools that function to pack the data for numerous periods into one price bar. These charts become more fruitful than simple lines, with low, and high close bars that fix the dots of closing prices. Candlesticks make patterns that predict the direction of prices upon their completion. Colour coding plays a vital role in this scientific tool.
Appropriate colour coding put on depth to candlestick chart. Each candle apprises a different story. Also, each candle is seen as a competition between sellers and buyers. The light candle, usually white or green, shows that buyers are the winners today. Whereas, the dark candle is usually black or red shoes that sellers are dominating today’s contest between sellers and buyers is the source of attraction of candlesticks as a tool for charting.
Candlestick patterns have been used for centuries to forecast the direction of price. These patterns are dozens in amount. Usually, traders use candlestick patterns with extra scientific indicators to purify their trading strategies. Candlesticks are usually established on past and current price fluctuations. However, they don’t indicate the future.
Reading a Candlestick pattern
Candlestick shows the opening, closing, and low and high prices. The body which is dark colored like black or red shows the dropping price. The body which is light-colored shows that there is a price increase. Lines that are below and above the body are called tails and wicks. They show the highest low and biggest high. Each candle represents one term, if you have opened a daily price chart, then each candle will represent a daily price movement. Similarly, if you have opened a weekly price chart, each candle on the chart will show a price of one week.
Bearish continuation candlestick Patterns
Bearish continuation candlestick patterns show that drop-off will be carried on in the market to keep opening the trade of selling to get high profit from the market. A trader should be focused on schooling himself on candlestick patterns because they play a vital role in technical analysis while trading.
A candlestick pattern that projects further drop-off in an already dropping market is termed a bearish continuation candlestick pattern. It shows prices will continue to fall with the formation of a bearish pattern in an already bearish trend. Bearish pattern warns buyers to keep themselves aside from the market at that time. The bearish pattern also informs that sellers are dominating the market and will continue to dominate in the future market.
Identification of a bearish continuation candlestick pattern
There is a huge difference between the continuation and the reversal of the trend in candlestick patterns. Location is the main thing that shows the difference between both patterns. Because reversal patterns are formed when the trend is about to end, while continuation patterns are formed when the trend is ongoing.
Another way to detect a bearish trend is the use of price action or moving averages. The use of price action is more efficient in detecting a bearish trend.
Lower low and lower high formation
Another effective way process for identifying a bearish trend is lower low and lower high formation of prices. Price shows lower lows and lower highs; it exposes a bearish trend.
Method of Moving Averages
Determination of a bearish trend is also done through a 38-period growing, moving average. If the price shows below 38 EMA, it is a bearish trend. If it shows above the 38-EMA period, it is bullish. It is very important to keep checking the trend if we want to find bearish continuation candlestick patterns during a bearish trend.
List of Bearish Continuation Candlestick Patterns
Following are the bearish continuation candlestick patterns:
- Falling three methods
- Falling window candlestick
- On-neck candlestick pattern
- Bearish separating lines
- Downside Tasuki Gap
- Bearish three-bar play
1- Falling Three Methods
It is a bearish trend continuation pattern that contains five candlesticks. It contains three small bases and two big bearish candlesticks that are combined in a particular sequence, creating falling three methods patterns. The setting of candlesticks in a particular pattern is very important in this method. Because, the formation of a big bearish candlestick shows the win of sellers. Next three small bullish candlesticks will be formed within the orbit of the preceding candlestick. Furthermore, again long bearish candlestick will be made overtaking the preceding three candlesticks. This pattern shows the dominance of the seller over the buyer.
2- Falling Window Candlestick Trading
This pattern includes two bearish candlesticks with a down gap between them. The down gap is the area between the recent candlestick’s high and the previous candlestick’s low. A down gap takes place due to elevating volume of selling orders. This pattern usually shows how powerful sellers are.
3- On Neck Candlestick Pattern
It contains two candlestick patterns. The first candlestick is a large bearish, and the other is a small bullish candlestick. The second candlestick opens with a down gap and closes below the price of the bearish candlestick.
4- Bearish Separating lines
This pattern forms when a bearish trend is ongoing. It shows that the price continues to fall. So, the trader should not trade in the demand zone.
5- Downside Tasuki Gap Candlestick
It includes three candlesticks and a gap which is a downside. The first candlestick is bearish. Whereas, the second candle unlocks with a gap down. And the third moves upwards to the zone of the gap. Here, two candlesticks which are down-gapped, indicate the sellers’ strength and the bullish candle shows the fragility of the buyer.
6- British Three-bar Play
It consists of two big red candlesticks which have a base candle. A trader should open a selling trade after the formation of a three-bar play.
In short, candlestick patterns play a vital role in predicting the trend of the market. Continuation patterns have a higher ratio of winning than reversal patterns.
