What are scallops in trading terminology?

In trading terminology, scallops refer to short-term rounding formations that typically indicate continuation patterns. This characteristic is essential to understand because these formations signal that the existing trend is likely to maintain its direction after a brief pause or consolidation.

When traders identify scallops on price charts, they are observing a specific price behavior where the market rounds off and creates a smooth, curved appearance. This pattern does not exhibit sharp movements but instead reflects gradual changes, signaling that the asset may continue moving in the same direction following the formation of the scallop.

Recognizing scallops can provide traders with valuable insights for timing entries and exits in the market, as it suggests a resumption of momentum in the prevailing trend, thereby offering potential opportunities to capitalize on price movements. Understanding how to identify and interpret these formations is key to effective technical analysis and trading strategy development.