By: John Crane, swing trading guru

Trend Continuation Patterns

When I look at a trending futures market I can see two different types of trends. The first is a steady trend with overlapping waves. In other words, an upward trending futures market will move higher and then make a correction or retracement that is lower than the previous high swing point or pivot. An overlapping trend will typically retrace between 50% to 78% of the previous futures market timing upswing, before resuming the dominant upward trend. The pullback will usually last between 7 and 12 days. The other type of trend is a fast moving trend where the corrections or retracements are somewhere between 20% to 40% of the previous upswing. The correction will typically end at or above the previous pivot high before resuming the upward trend. The correction usually lasts between 3 to 4 days or sometimes can be as long as 7 days. This type of futures market timing is fast moving and can offer quick gains if played correctly.

Trading success depends on the strength or weakness of a futures market, as well as how well the trading plan is followed. The best trading opportunities generally appear early in a futures market timing trend. As the trend nears exhaustion, the odds for success decrease. At the end of a long-term trend, futures market timing momentum can disappear quickly. Sometimes, the futures market timing will even turn unexpectedly and dramatically against you. This can leave many inexperienced traders with the feeling that theyve just been ambushed by the futures markets. Even though this change in futures market timing momentum seems sudden, there are usually warning signs that hint of a pending futures market timing direction change before it actually happens. It is here that the SWING TRADING STRATEGY TR pattern has its value. You may have noticed in most of the SWING TRADING STRATEGY TR chart examples the trend would either end at the projected swing trade date or very soon after. Therefore, I would know in advance when the trend should be near exhaustion and therefore manage the position accordingly.

However, not all futures markets will peak at the end of the SWING TRADING STRATEGY TR pattern projections. There are many times when the futures market timing will pause before continuing the trend. The pause will usually lead the futures market into a consolidation or correction phase before continuing the dominant trend, in other words, form a new Reaction swing strategy. I call this type of futures market timing action a Trend Continuation pattern and it can be used in the same manner as the SWING TRADING STRATEGY TR pattern. A Trend Continuation pattern (Swing Trading Strategy TC) always follows the SWING TRADING STRATEGY TR- pattern and as the name implies portends a continuation of the current trend. But, the Swing Trading Strategy TC pattern does much more than just confirm a trend continuation; it can also be used to make Time and Price projections of the current trend. Just as the Reaction swing strategy will fall in the center of a short-term futures market timing swing, the Trend Continuation pattern will fall in the center of a longer-term trend. Once again this falls in line with the Action/Reaction theory.

When a futures market trades higher into a projected swing trade date, the futures market has a strong tendency to reverse and trade lower. On the other hand, when a futures market trades lower into a projected swing trade date, the futures market has a strong tendency to reverse and trade higher. Therefore, if the prevailing trend is sloping downward and the futures market timing makes a low pivot a couple of days prior to a swing trade date and trades higher into that date, it would suggest the futures market timing is ready to reverse and resume the downward trend. This would be the beginning of a Trend Continuation or Swing Trading Strategy TC pattern. The opposite holds true if the futures market is trading higher and pulls back into the swing trade date; it would suggest a continuation of the upward trend. There are many warning signs that foreshadow trend exhaustion. These include: the end of a natural futures market timing cycle in a predetermined sequence, price patterns that foretell possible trend exhaustion, and momentum. These warning signals are enhanced when they occur on or near a predicted swing trade date. The following examples will illustrate what we are talking about.

The Trend Continuation (Swing Trading Strategy TC) pattern appears inside a strong trending futures market and follows a SWING TRADING STRATEGY TR pattern. As the names states, this pattern signals a continuation of the current trend, but it also tells me much more. Such as, how long the trend will continue and how far it may go. Like the SWING TRADING STRATEGY RT pattern, the Swing Trading Strategy TC pattern also consists of five pivots, with the Reaction swing strategy formed by the last two pivot points, as shown in Figure # 3.1.

Figure # 3.1 Trend Continuation Pattern (Swing Trading Strategy TC)

**THE RISK OF LOSS IN TRADING CAN BE SUBSTANTIAL. YOU SHOULD, THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER-COMPENSATED FOR THE IMPACT IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT.NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES.

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