Forex Trading

A bullish pennant pattern drawing begins with the flagpole component which is drawn from bottom to top and it marks the bull trend. Secondly, a declining resistance trendline is drawn from left to right which connects the lower swing high points together. Finally, a rising support trendline is drawn which connects the higher swing low points together.

The ideal time to trade with a pennant is on confirmation of the breakout after a sudden, sharp move in price. A breakout accompanied by high volume suggests strong seller interest and increases the likelihood of a successful trade. Monitoring volume levels during the formation and breakout phase can help traders make more accurate trading decisions.

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The price should decline by the height of the pennant or its flagpole amid increasing volumes. Thus, the pattern completes its construction with several candlesticks. The profit target is also known in advance and is at the resistance level. Take profit is determined either by the height of the flagpole or, as in this case, by the height of the pennant itself. Let me explain the bullish pennant pattern on the example of the USDCHF H4 chart. Take profit calculation depends on the pennant’s upper border breakout rate, which is the variable point (4).

This suggests that stock traders are still bearish on the market and or stock and are looking for prices to continue falling. Yes, Fibonacci retracements are used in combination with a pennant pattern to identify potential entry and exit points for trading. It is a technical analysis tool that helps identify support and resistance levels based on the Fibonacci sequence.

What is a Bearish Pennant Pattern?

• Monitoring these resistance levels helps investors anticipate potential breakouts and reversals.
• Bearish pennants and bullish pennants can indicate that major price action is on the cards – so understanding them is crucial for any technical trader.
• The bullish pennant pattern entry point is when the market price penetrates the pattern resistance area on rising buyer volume.
• This was a long downtrend with several bear pennant formations on the chart.
• This is why proper risk-management steps are vital for adoption to protect your capital.
• A pennant makes it possible to identify the momentum of a sharp breakout followed by the continuation of the price movement in the initial direction.

This phase often represents a pause in the market where bulls and bears are temporarily in equilibrium. The Pennant Pattern is a classic pattern for technical analysts and is identifiable by a large price move followed by a unification period and a breakout. A Pennant is a type of continuation pattern formed when there is a large movement in security known as the flagpole. The patterns that appear in financial markets are used by traders to predict future market movements. Identifying a bearish pennant involves recognizing specific chart patterns that signal a continuation of a downtrend. The pattern starts with a sharp price decline, forming the flagpole, followed by a consolidation phase that creates a small symmetrical triangle.

How to trade Forex using Pennant Chart Pattern?

To trade the bearish pennant pattern, the first step is to identify the pattern formation. Look for a sharp decline followed by a consolidation phase forming a symmetrical triangle. Ensure that the pattern is within a downtrend, confirming its validity. A pennant pattern is identified by its shape during a price uptrend or price downtrend in a capital market.

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The formation of pennant patterns in price charts reflective the ebb and flow of investor sentiment and the tug-of-war between bulls and bears. According to charting statistics, breakout occurs roughly 75% of pennant formations. The break below pennant support signals sellers have overwhelmed willing buyers during the consolidation. This completes the pattern and implies the prior downtrend will probably resume with gusto. While their formations look alike, continuation patterns like pennants are unique because they emerge within an existing uptrend or downtrend rather than reversing it. Traders watch them closely to identify when a stock price may break out of the pennant and resume its dominant direction.

• Over the years, I’ve seen many beginners struggle with differentiating between a true bull pennant and other similar patterns.
• Each day our team does live streaming where we focus on real-time group mentoring, coaching, and stock training.
• Then, when the market begins to break out of the pattern, volume spikes.

The pattern should continue after the break out of the upper border, either at the point of the contact of these lines or a little earlier. We introduce people to the how to trade bearish and bullish pennants world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey. Just like we predicted, the price made another strong move upwards after the breakout.

They have a similar shape and are easy to mix up; they could look like each other. Sometimes when the entry trigger is quite a distance away from the breakout point, it might make sense to wait for a possible pullback to get a more favorable execution price. However, the risk in doing so is that there is no guarantee that the price will actually retrace to give us that opportunity. In this case, based on our simplified rules, we would have gone short on the bar following the breakout close as shown by the orange circled area.

Set your stop loss above the consolidation phase of the bearish pennant. This placement helps protect your trading account from significant losses if the breakout fails. The stop loss should be just above the upper trendline of the pennant to ensure it is within a reasonable range, minimizing risk while allowing for normal price fluctuations. Exiting the trade involves setting a profit target based on the height of the flagpole. This measurement provides a potential target for exiting the trade. The timing of the breakout and the volume levels are crucial indicators of the pattern’s validity.

This parity between supply and demand causes its price to consolidate. The good news for beginner traders is the ability to use actually the same approach while using either bearish or bullish pennant. Bias is the only thing that makes trading these patterns a bit different. A bearish pennant comes with a short bias while a bullish pennant has a long bias. In the below chart, we can see that a brand new downtrend has just begun.

But accurately identifying a bear flag chart pattern versus bearish flag pennant could give your trading an edge if you know how to respond to each formation. Next, the pennant takes shape as the price movement starts to consolidate. The upper and lower boundaries create new support and resistance levels showing where buyers and sellers reach equilibrium temporarily. My goal is to decode the bearish pennant pattern so you can spot it more easily and have a battle plan ready to act.

When this occurs, we expect price to move higher, often with a target that is equivalent to the length of the prior impulsive move, also referred to as the flagpole. There are many different forms of technical analysis methods used by traders. One of the more common approaches is to trade using classical chart patterns. In this lesson, we’re going to take a deep dive into one of those classical chart patterns, the pennant pattern.

IG International Limited is licensed to conduct investment business and digital asset business by the Bermuda Monetary Authority. Discover the range of markets and learn how they work – with IG Academy’s online course. As you can see, the drop resumed after the price made a breakout to the bottom. Price action bounces in (2-3) range, creating lower high(s) and higher low(s). I am a professional Price Action retail trader and Speculator with expertise in Risk Management, Trade Management, and Hedging. In the below AUD/NZD chart, we have found another Bullish Pennant pattern.