CNBC Weekly Bonus Quiz Answer: Traders break patterns into two types; continuation and _______.

CNBC Weekly Bonus Quiz Answer

Traders break patterns into two types; continuation and _______. Answer: reversal



THE TRIPLE BOTTOM FORMATION

Technical analysis divides price patterns into two main types: continuation and reversal.

A continuation pattern represents a pause in the dominant trend. For example, an ascending triangle is often a continuation pattern. The assumption with the continuation formation is that prices will leave the formation in the same direction as they came in. One would therefore expect an ascending triangle to break out to the upside. The pattern therefore has a bullish bias.

A true reversal formation by definition occurs much more rarely than a continuation or consolidation formation. This type of pattern is seen only at major turning points in a market. A reversal formation must have a prior trend to reverse. Either an uptrend will turn into a downtrend, or the reverse will occur.

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