By 06/07/2022

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You should consider whether you understand how this product works, and whether you can afford to take the high risk of losing your money. Our entry trigger will be a breakout and close below the support line of the pennant pattern. Notice here that entry occurred quite a bit below the support level just one bar prior. In any case, this would have served as the entry trigger for the trade. As a result, we will need to evaluate the price move within the flagpole to ensure that it displays impulsive characteristics.

They refer to continuous chart patterns and work similarly to triangle patterns though with some core differences traders need to take into account. The bearish pennant pattern can be seen following a strong price movement to the downside, which is often seen as an impulsive leg. The price action will be contained within this contracting structure, and we can expect a breakout to the downside as the price progresses towards the apex point. This shape is similar to the shape of the pennant flags typically used in sporting events. The pennant starts with the “pole” or “flagpole,” which represents the previous trend. This price range decreases over time, forming the “flag” shape when the support and resistance trendlines converge with each other, as shown in the figure below.

  • Here are a few frequently asked questions regarding bear pennant and forex trading.
  • The bullish pennant pattern is predictable and accurate, as it has a well-established structure and strategy for trading.
  • Pennant patterns are chart patterns that are used by traders to identify potential changes in the trend of a stock.
  • IG accepts no responsibility for any use that may be made of these comments and for any consequences that result.
  • Therefore, the bullish pennants, just like the bearish ones, cannot be rising.
  • You can consider this pattern as a strong bullish signal, as it indicates that the market is likely to continue its upward trend.

Pennant is a type of continuation chart pattern that tends to form after strong trend moves. Traders tend to go into consolidation after a big uptrend or a downtrend. Due to this trader consolidation, the price also usually consolidates and forms small symmetrical triangles. The converging trend lines of the Pennant triangle contain information about the price action. These also have the potential to form under both bullish and bearish conditions in the market. We’ll talk more about bullish and bearish patterns in this Pennant guide in a bit.

Because of this, the price usually consolidates and forms a tiny symmetrical triangle, which is called a pennant. Before the breakout, at least two highs (including the pennant’s pole high) and two lows are the minimum for a valid pattern, more touches are acceptable. Immediately following our short entry, we need to place a stoploss order to protect ourselves in case our analysis turns out to be incorrect. The stop loss placement per our rules would be entered just beyond the recent swing high prior to the entry signal. The red line above our entry signal shows where that stoploss placement should be.

Are bearish pennants and bullish pennants reliable tools for technical analysis?

This means that we would measure the length of the flagpole and project that same length forward from the breakout point as the potential target. Here are some real examples showing the bullish and bearish pennant patterns that readers can use as a reference. Readers should note that a pennant’s appearance is not a guarantee that there will be a price continuation. Experienced traders typically use trading indicators or technical analysis tools such as moving averages to confirm the pennant pattern. A take profit must be set at a distance equal to the height of the flagpole or the pennant itself. As you know by now, with this pennant guide, pennants appear after consolidation periods.

  • The bear pennant pattern is a chart formation that helps you spot downtrends.
  • In this example the break was rather significant and added to the likelihood of a continued move to the upside.
  • The principle of determining the bearish pennant pattern in the price chart is the same as with the bullish pennant, only in the opposite direction.
  • However, no matter how you place a profit target, it will be below the bear pennant pattern on your price chart.
  • Thus, the pattern completes its construction with several candlesticks.

So, you need to know how to protect your profits and cut your losses quickly when necessary. Therefore, you must avoid taking significant risks that may lead you to a severe loss in the long run. As you can see, the drop resumed after the price made a breakout to the bottom. On the date of publication, Chris MacDonald has a LONG position in META. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

In the picture below, you can see how a flag’s shape differs from the pennant. So, profit targets will be located beneath the pennant’s lower trend line. One way to place a stop loss when trading this pattern is to put it on pennant resistance. This will help you manage your risk and protect your profits in case the breakout does not occur or the market reverses course.

How to trade bullish and bearish pennants

The sellers that have pushed its price down might then back off and take profit, while bulls sense the potential for a bounce back. To identify a bullish pennant, you’ll need to watch for two elements. Firstly, a pronounced upward movement beforehand known as the ‘pole’. Secondly, a price consolidation that forms a roughly symmetrical triangle with its support and resistance lines. Technical traders take this as a sign that the original ascending price move is going to resume. This makes the bullish pennant pattern particularly sought after, as it can offer an early indication of significant upward price action.

What is the Bull Pennant?

The appearance of a pennant does not necessarily mean that the trend will continue after the price breakout point. Hence, traders should only trade what they can afford to lose and set up their Take Profit and Stop Loss orders properly according to their risk tolerance. In addition, traders should combine the pennant pattern with other available trading tools and practice with such tools before utilizing them in trades. The good thing about pennant patterns is that trading using either the bullish or the bearish is similar and the same approach works on both of them. The only difference here is while bullish pennants will have a long bias, the Bearish Pennants tend to have a short bias. After a sharp move in the asset price, the pennants indicate a high probability of a breakout and a continuation of the trend in the same direction.

Identifying a bullish pennant on a price chart is sometimes difficult, especially for beginners, due to its similarity to symmetrical triangle and bull flag price patterns. However, if you know the peculiarity of constructing this chart pattern, it will not be hard to identify. You can also use technical indicators to determine the entry point. A pennant is a symmetrical triangle formation with converging trend lines and diminishing trading volume.

That’s why it is crucial to avoid entering the trade if there is no breakout yet. And you should also pay attention to other indicators to confirm this breakout. But, it’s important to remember that no indicator is 100% accurate.

Pennant Trading Strategy 3: Trading based on 50% of the flagpole

When the pattern is formed, there is a sharp decrease in volume, which characterizes the pennant. The pennant pattern belongs to trend continuation patterns, like other chart patterns, such as the flag or the ascending triangle. Measure the height of the flagpole and project it downwards from the breakout point. This calculation provides an estimate for the potential price target, guiding your profit-taking strategy for the continuation of the downtrend.

Characteristics of a Pennant Pattern

The very first thing that we want to do is to look back in the price action and see if we can recognize a strong impulsive price move leading up to the pennant pattern. Now with that said, we can see the strong bearish price move that occurred just before the consolidation how to trade bearish and bullish pennants phase of our potential pennant continuation pattern. Notice how there are a large percentage of red candles that make up the sharp move lower. When the bullish pennant pattern is formed, a strong upward movement is likely to occur when the price breaks above the pennant.

Bullish pennants come after a bullish trend while bearish pennants can be spotted after a bearish trend. Trading on pennant patterns can be very profitable if traders can reliably identify them. First, traders should look out for consolidation periods after bullish or bearish trends. Then, traders can wait for price breakouts to either go long or go short. However, like all trading strategies, pennant trading involves a certain degree of risk.