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Continuation patterns, in technical analysis, pertains to using the patterns that repeat itself on the price chart. Chart patterns based trading is as old as technical analysis itself.
In fact, chart patterns analysis is closely rooted in the principles of technical analysis. It dictates that, in the short term, investors can look at the past price history to predict future price movements. Trading using chart patterns is subjective. Yet, amid this subjectivity, some aspects are easy to follow. While there is still a level of subjectivity involved, the general consensus is broadly the same.
Why do Chart Patterns Occur?
Firstly, there is no clear answer to this. Prices remain irrational and there is no guarantee that past patterns will continue to form. More importantly, even if a pattern that is easy to recognize, forms on the charts, there is only a 50% probability that it will work as intended.
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