Many shapes are ambiguous — a triangle, a rectangle, even a flag can resolve either way. The most important judgement in pattern trading is whether a consolidation is a pause (continuation) or a turn (reversal), because it decides the direction of your trade. Here is how to weigh it.
Evidence for continuation
- The pattern is small and brief relative to the trend (a flag, a tight pennant).
- The counter-trend move is lazy — small candles, fading volume.
- It sits mid-trend, not after an exhausted, extended run.
- The prior trend is strong on the higher timeframe.
Evidence for reversal
- The pattern is large and takes a long time to form.
- It appears after an extended, climactic move (lots of prior trend already spent).
- It forms at a major higher-timeframe level (resistance/support).
- Market structure breaks — a higher low gives way in an uptrend, etc.
The honest default
When the evidence is mixed, the base rate favours continuation — trends persist more often than they reverse, so 'the trend is innocent until proven guilty.' But do not force it: if you cannot tell, the answer is a smaller position or waiting for the break to declare itself. The pattern does not have to tell you the direction in advance; the break will. Your job is to be positioned and risk-defined when it does.
Bridge
You now have the price-action toolkit: candles, structure, levels, and the reversal and continuation patterns they build. The next modules add indicators — moving averages, oscillators, volume and volatility tools — that quantify what your eyes have learned to see.