Part I Chapter 5 — Continuation Patterns

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The Power of Japanese Candlestick Charts by Fred K. H. Tam

1. Core Concept & Theoretical Foundation

Primary objective of this chapter: To catalog the second major pattern family — continuation patterns — which is the direct counterpart to Chapter 4’s reversal patterns. Where reversal patterns warn of a trend change, continuation patterns tell the trader the market is only resting or consolidating before resuming its prior trend. The chapter applies the same rigorous four-part template (Pattern description → Rules of Recognition → Interpretation → Proper action) used throughout Chapter 4.

Foundational theory — why markets pause: No market moves in a straight line. An uptrend gets overbought and needs to pull back (via profit-taking) even if it intends to keep rising; a downtrend gets a brief rebound (via bargain-hunting) even if it intends to keep falling. Continuation patterns are the candlestick vocabulary for describing these temporary pauses — as opposed to genuine reversals.

Key scale observation (a direct callback to Chapter 4): The author explicitly notes that this book documents 53 reversal patterns but far fewer continuation patterns — reflecting the reality that Japanese candlestick theory, like Western theory, has richer tools for spotting turning points than for confirming a pause-and-continue.

Underlying market psychology (the throughline for this chapter): Nearly every continuation pattern tells a version of the same story: the opposing side (bears within an uptrend, bulls within a downtrend) stages a brief “counterattack,” but it is too weak or too short-lived to actually reverse the trend, and volume typically drops during the correction and rises again on the breakout — confirming that the pause was profit-taking/bargain-hunting rather than genuine trend exhaustion.

Historical/theoretical link: Several patterns in this chapter (Rising/Falling Three Methods, Mat Hold) are explicitly identified as part of Sakata’s Five Methods (san-poh, or “three methods”) — previewing Chapter 9’s deeper dive into Sakata’s classical trading constitution — and are explicitly mapped to Western equivalents (Bullish/Bearish Flag, Bullish/Bearish Pennant Breakout), continuing the East-vs-West comparative approach established in Chapter 4.

2. Key Terms & Definitions

Term	Definition
Window	The Japanese term for a gap on a candlestick chart — a price vacuum where no trading occurred, caused by a void or surge in buy/sell orders. Up-gaps (windows) signal market strength; down-gaps signal market weakness.
“The window is being closed”	The Japanese chartist’s equivalent of the Western phrase “the gap is being filled” — describing price re-entering a previously opened window.
Window as support/resistance	An open, unfilled window acts as a support zone in an uptrend (a good buying area is just above the window) or a resistance zone in a downtrend.
Window broken/violated	When a correction not only closes a window but pushes through its far boundary — this signals an actual trend change, not just a pause, and is the trigger to exit the existing position and reverse.
Ikichigaisen (Separating Lines)	Japanese for “lines that move in opposite directions”; also called Dividing Lines (furiwake).
San-poh (“Three Methods”)	The Japanese naming convention behind Rising/Falling Three Methods, referencing Sakata’s Five Methods; the “three” refers to the typical (but not fixed) number of correction days.
Belt-Hold candle	(Reintroduced from Ch. 2/3) A candle with no shadow on one end — used here as a defining ingredient of the Separating Lines pattern.
Marubozu Candle	(Reintroduced from Ch. 2) A candle with no upper or lower shadow — the defining ingredient of the Kicking pattern.
Double Thrusting Line	A special case where two Thrusting Line patterns appear within a few days of each other — this reclassifies what would normally be a bearish continuation signal into a bullish reversal pattern instead.
Neck	The reference point (the low or close of the prior black candle) that gives the On-Neck and In-Neck patterns their names.

3. Anatomy, Rules, & Construction Mechanics

A. Double Candlestick Patterns (pp. 172–185)

Separating Lines (Bullish/Bearish):

Two opposite-coloured candles whose opens are at the exact same price.
Bullish version: black candle → white Belt-Hold candle (opens at the low) that gaps up to the black candle’s open and rallies further.
Bearish version: white candle → black Belt-Hold candle (opens at the high) that gaps down to the white candle’s open and declines further.

Kicking Pattern (Bullish/Bearish):

Nearly identical to Separating Lines, but with a true gap (window) between the two Marubozu candles (no shadows on either candle).
Bullish: Marubozu Black Candle → gap up → Marubozu White Candle.
Directional strength rule: compare the real-body lengths of the two candles — the market is expected to move in the direction of the longer candle. (If the second candle is shorter than the first, the “continuation” pattern can actually flip into a top/bottom reversal pattern instead.)

On-Neck Pattern (bearish only): Long black candle → small white candle whose close lands exactly at the low (“neck”) of the black candle. Described as an “underdeveloped” Piercing Line/Thrusting Line — similar to In-Neck and Meeting Lines.

In-Neck Pattern (bearish only): Long black candle → Short Closing Bozu White Candle whose close lands just inside/near the close (not the low) of the black candle. Also an underdeveloped Piercing Line/Thrusting Line.

Thrusting Line (here framed primarily as bearish continuation): Long black candle → white candle closing into but below the midpoint of the black candle’s real body.

Special reclassification rules: becomes a bullish reversal pattern if a bullish confirmation candle closes above the high of the last two candles, OR if two Thrusting Lines appear close together (Double Thrusting Line).

(Note: On-Neck, In-Neck, and Thrusting Line form a natural “weakness spectrum” — all three represent a failed bullish counterattack against a downtrend, distinguished only by exactly where the second candle’s close lands relative to the first candle’s low/close/midpoint.)

B. Multiple Candlestick Patterns (pp. 185–192)

Rising Three Methods (bullish) / Falling Three Methods (bearish):

5-candle pattern: one long trend-direction candle → three small counter-trend candles (that must stay within the range of the first candle) → one final long candle breaking out in the original trend direction, closing beyond the first candle’s close.
Correction is “usually” 3 days but can range 1–5 days.
Volume signature: drops during the 3-candle correction, rises sharply on the breakout day.
Western equivalent: Bullish/Bearish Flag.

Mat Hold Pattern (bullish only):

A stricter, more bullish variant of Rising Three Methods: candle 2 gaps up and stays unfilled; candle 3 comes down to fill the gap and penetrates the first candle’s real body; candle 4 closes even lower but must stay above the midpoint of the first candle (a shallower pullback than Rising Three Methods allows); candle 5 is a long white breakout candle.
Explicitly noted as more bullish than Rising Three Methods specifically because the correction never breaches the midpoint.

C. Windows/Gaps Patterns (pp. 192–204)

General Window (Gap) principles:

Formed by a void or surge in buy/sell orders — price opens beyond the previous session’s high (up-gap) or low (down-gap), leaving unfilled space.
Acts as a support zone (uptrend) or resistance zone (downtrend) until it is violated.

Tasuki Upside Gap (bullish) / Tasuki Downside Gap (bearish):

3-candle pattern: a long trend-direction candle → a second small candle that gaps further in the trend direction → a third, opposite-coloured candle that opens inside the second candle’s body and closes beyond it, partially or fully closing the window but not violating it.
The critical rule: if the window is broken (violated), the bullish/bearish continuation reading is negated.

Up-Gap / Down-Gap Side-by-Side White Lines:

3-candle pattern: one long trend-direction candle, followed by two consecutive white candles of similar size that both gap in the trend direction, with the window left unclosed.
Explicitly noted by the author as a rare formation.

High-Price Gapping Play (bullish) / Low-Price Gapping Play (bearish):

A long trend-direction candle → a multi-candle consolidation of small real bodies (should last under a week) → a gap (window) that breaks out of the consolidation in the original trend direction, with the window left unclosed and volume rising sharply on breakout.
Western equivalents: Bullish/Bearish Pennant Breakout.

4. Practical Trading Application

Universal confirmation logic (mirrors Chapter 4’s 3-candle structure): Most patterns here follow the same buy/sell-stop mechanics as reversal patterns:

Continuation buy signal: confirmation candle closes above the highest high of the recent pattern candles.
Continuation sell signal: confirmation candle closes below the lowest low of the recent pattern candles.
Protective stop: placed at the opposite extreme (sell-stop below the pattern low for a long position; buy-stop above the pattern high for a short position) in case the “pause” turns out to be a genuine reversal instead.

Author’s personal deviation from classical Japanese theory (Tasuki Gaps): Classical Japanese theory calls for buying/selling immediately on the third candle of a Tasuki pattern. The author explicitly states he prefers to wait for a fourth confirmation candle that closes beyond the highest high (or lowest low) of the previous two candles before acting — a clearly flagged personal risk-management preference, not just a textbook rule.

Window-based risk management (the chapter’s most distinctive contribution):

Treat an unbroken, unfilled window as a support/resistance zone: the area just above an uptrend’s window is a good buying area; the area just below a downtrend’s window is a good area to add shorts.
The single most important risk rule in this chapter: if a correction not only fills but violates (breaks through) the window’s far boundary, this is reclassified from “pause” to trend change — existing positions should be closed and reversed, not just protected with a trailing stop.

Volume as a confirming filter (recurring across nearly every pattern in this chapter): A consistent volume signature is used to distinguish genuine continuation from a fakeout: volume should fall during the consolidation/correction phase (implying weak counter-trend participants) and rise sharply on the breakout candle (implying the original trend’s participants have returned in force). This is an early, concrete instance of the book’s broader “filtering” philosophy — using a non-price, non-candlestick data point (volume) to validate a pure candlestick signal.

Directional-strength tiebreaker (unique to the Kicking Pattern): When two Marubozu candles of a Kicking Pattern gap away from each other, compare their real-body lengths — the market is expected to move toward the longer of the two bodies. This is one of the few rules in the book that turns pattern interpretation into a direct relative-measurement comparison rather than a fixed structural rule.

5. Active Recall Quiz

What is the fundamental distinction between a reversal pattern (Chapter 4) and a continuation pattern (this chapter), and what does the author say about the relative number of each type documented in Japanese candlestick theory?
On-Neck, In-Neck, and Thrusting Line are described as forming a “weakness spectrum” of failed bullish counterattacks against a downtrend. What single measurable point does each pattern’s second candle need to close at or near — and how do the three patterns differ from one another?
What is the difference between the Separating Lines pattern and the Kicking Pattern, given that both involve two opposite-coloured candles with matching/aligned opens?
Explain the concept of a “window being violated” (broken) versus a window simply being “closed” (filled). Why does the author treat a violated window as a signal to reverse position entirely, rather than just tightening a stop?
According to the chapter, what volume pattern should a trader expect to see across the lifecycle of a typical continuation pattern (from the initial trend candle, through the consolidation/correction, to the breakout candle) — and why does this volume signature matter for confirming that the pattern is genuine?