While understanding technicals and indicators can be one route to identify patterns, nothing can beat good-old price action and base identification
Continuation pattern occurs when there is a strong uptrend in a stock followed by a pause. There are high odds (A critical keyword) that the trend will resume again similar to a speeding car which had to slow down due to a speed breaker The road ahead is clear now!
Eg: Cup and Handles, Minervini’s VCP or Manas arora’s VCP, Channels, Flag & Poles, etc are all continuation patterns Why do they work? A setup should clearly answer the question “Which group is strong at this moment - Buyers or Sellers?” That's the crux!
In continuation, the uptrend has shown that the buyers have taken the prices higher The pause shows that sellers have come in and dragged the price lower The above two can happen for days, weeks or sometimes even months Thus, Patience which is an underestimated skill is crucial
In the end, when sellers are handful and buyers have absorbed all the selling the setup can be qualified to be in our watchlist Best time to find such setups? In an uptrending market when majority of stocks have a heavy buying force
Quality of setups? The sellers should be weak i.e they should not be able to drag down the price drastically This is called contraction. The quality of contractions determine the strength of the base Red Flags - Huge sell offs - Extended moves - No contraction in volatility
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