Reversal or Continuation?

The most important thing to notice about these patterns is that they come in two forms:

1. Reversal - A reversal is where a trend that took place before a pattern began has ended. The stock might have gone up before the pattern, but the stock will then go down afterward.
2. Continuation - A continuation shows that the price changes in the stock will continue to move along even after the pattern is finished. The pattern might be a brief occurrence, but the stock will go on unabated after that.

These points can be used to determine how you should trade a stock. You might consider buying a stock to sell later or you could put in a call or a put option depending on how the stock is moving. Either way, you can always invest in a stock regardless of whether is moving up or down in value. An interesting thing about reversals and continuations is that they can go on for a long time. It is difficult to figure out how long one of these events will be, but you can be sure that when a pattern occurs that something will more than likely happen after a while.