What are Continuation Patterns in Binary Options?

Continuation patterns often appear on technical and analytical charts in binary options trading, and it is important for a successful trader to be aware of the differences between a reversing pattern and a continuation pattern and to know what to do when one is identified.
A continuation pattern is an indicator that the asset price is breaking an area of consolidation is the same direction as the prior trend, so if, for example, an asset’s price was trending to the upside and then forms an area of consolidation such as a flag or triangle before then breaking high, the area of consolidation can be called a continuation pattern, since in the end the asset’s price breaks in the same direction as the previous trend.
The opposite is also true, with the price breaking the area of consolidation in the opposing direction to the one that existed in the previous trend.

What are Pennants?

A pennant is a triangular formation which occurs following an almost vertical price rise, and once the price has broken the triangle, there will be a strong move to the upside.
As this is a bullish continuation pattern, a trader should purchase call options, bearing in mind that following this pattern time, the asset’s price will move very rapidly. The advantage is that this is a measured move, and therefore the pattern will be confirmed by observing the measured move to see whether or not it takes place.
It is generally believed that if you are using a lower time frame such as a five minute chart, the market can never break into the oversold level and therefore when a pennant is identified on one of these time frames it is the chance to place call options with a small expiry date. If on the other hand it forms on a bigger time frame such as a daily chart, it will almost never be a triangle, although it appears to be one. In Elliott Waves Theory, the so called triangle will actually be a double flat pattern and although the C wave appears to be powerful, it will fail in the end to take the lows of the prior B wave thus giving the trade the ideal strike price for their call option.
Pennants generally form before a key news release, and a pennant is virtually always a bigger degree X wave and very rarely a B wave so the expiry date chosen should be smaller than its time frame.

Comparing Continuation Patterns and Pennants in Binary Options Trading

A continuation pattern is a key formation to watch out for on an analytical chart, and a pennant is a key indicator inside that pattern, signalling that the movement will not change.
There are other types of continuation pattern as well as pennants including rectangles, flags and wedges. Pennants are just one type of continuation pattern, although it is extremely useful in informing the experienced trader’s trade execution.
A pennant continuation pattern will form when the price movement of a triangular pattern is almost vertical following an extremely strong upside move. This strong move is the pennant’s pole while the almost vertical movement forms its flag. This continuation pattern is a signal that the current bullish trend in the market is going to continue and therefore call options should be purchased as soon as the pattern is identified.
The pennant is an excellent tool for identifying continuation patterns on the charts and can be used to maximise profits while trading as they are a clear sign as to which type of binary options to trade.

Other educational articles

• How to Use a Risk Reversal Strategy to Avoid a Large Part of Your Risk While Trading Binary Options
• Use Simple Corrections In Elliott Waves Theory To Master The Market
• Using Fibonacci Confluence Zones To Trade Binary Options
• How to Use a Risk Reversal Strategy to Avoid a Large Part of Your Risk While Trading Binary Options
• What is the Pinocchio Binary Options Trading Strategy?
• Reversal Patterns Triangles Trading Strategy

Recommended readings

• “Trading patterns of big versus small players in an emerging market: An empirical analysis.” Lee, Yi-Tsung, Ji-Chai Lin, and Yu-Jane Liu. Journal of Banking & Finance 23, no. 5 (1999): 701-725.
• “Intraday Patterns in the Cross‐section of Stock Returns.” Heston, Steven L., Robert A. Korajczyk, and Ronnie Sadka. The Journal of Finance 65, no. 4 (2010): 1369-1407.