How to Trade Bullish and Bearish Pennant Patterns

pennant trading strategy

The Pennant Forex Trading Strategy is easy to learn and with a little practice could be all you need to make a living trading. We talked briefly about support and resistance areas with this strategy, and if you still are not quite grasping what we mean, check out the Rabbit Trail Strategy that talks a lot about this. We discussed this in our other article that talks about traders making trading decisions at certain places on the charts. Think about it, everyone is looking at the same charts and are seeing the same thing. When a breakout occurs, everyone sees this happen and makes a trade decision. Traders should look to enter the trade on confirmation of the breakout after a sudden, sharp move in price.

Once the price action later entered a consolidation area and it started resembling a flag/pennant formation, we begin to calculate the patterns elements in order to position ourselves accordingly. Our first profit target is the amount risked, i.e. 25% of the flagpoles height. As soon as it is reached, we take out half of our position and we will move our stop up to the entry point. This leaves us with a profit of 25% of the flagpoles height on the first portion of the trade, while the remainder may drop to breakeven in the worst case scenario.

  • The buyers then began to close their positions and made the trend stall and form what’s called a pennant pattern.
  • This is then followed by a period of consolidation, called the “Pennant,” and finally the bearish decline continues.
  • We discussed this in our other article that talks about traders making trading decisions at certain places on the charts.
  • Chart patterns describe distinct structures in financial time series.
  • They’re formed when a market makes an extensive move higher, then pauses and consolidates between converging support and resistance lines.

Therefore, in the following sections, we will discuss some of the most important strengths and weaknesses of the Pennant Pattern. Knowing these will empower you to make more informed trading decisions around these formations. With Breakout Trading Strategy, your goal is to trade the final leg of the Pennant Pattern. This is the price wave that initiates once the consolidation phase, or the Pennant, of the pattern, is complete.

What does a bearish Pennant mean?

If this value breaches the 50% threshold, there is only a small chance for a rebound in the direction of the prior trend. Besides these, there are a few rules that make up a viable pennant strategy. Some may form over a few hours, while others might take several weeks.

pennant trading strategy

The pennant pattern, which is the consolidation period between two converging trend lines, forms the shape of a pennant. Spotting bearish and bullish pennants can be tricky at first because the consolidation is often small when compared to the preceding price move. To practise identifying and trading patterns without risking any capital, open an IG demo account today. 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 Pennant pattern?

A stop loss can be placed at the low of the breakout candle, seeing that it was quite a big move or, for more conservative traders, a stop can be placed beneath the pennant to limit downside risk. Pennants are continuation patternsthat appear in the forex market and are used by traders to predict upcoming market movements. While similar to the triangle pattern, the Pennant pattern has some important differences that traders need to be aware of. For example, assume the first flagpole goes from a price of $50 to $40, forms a pennant through a consolidation around $44, and breaks out from the pennant at $42. The short price would be $42, and the ideal cover price would be $32 ($42 – $10).

  • There are two main types of chart patterns – reversal patterns and continuation patterns .
  • Candlestick Patterns are among the most popular trading tools in various technical trading circles.
  • If the price breaks below the pennant, I would not enter a trade based off of the rules of this strategy.
  • The price target for a breakout or breakdown from a symmetrical triangle is equal to the distance from the high and low of the earliest part of the pattern applied to the breakout price point.
  • But unlike in the flag, the consolidation of the bearish pennant takes the form of a triangle.
  • The breakout of the prices is usually accompanied by an increase in the volume.

However, if you know the peculiarity of constructing this chart pattern, it will not be hard to identify. In the case of the bullish pennant pattern, traders will be looking for a breakout from the upper trendline of the symmetrical triangle in the pennant phase. A move above this upper level on higher volumes will prompt many traders to hit the buy button. In price chart analysis of the financial markets, a pennant is pennant trading strategy a continuation chart pattern that forms when the market consolidates after a sharp move. The pattern can be seen in any time frame, and it consists of a small triangular price formation that follows a fast price movement, which can be seen in an uptrend or a downtrend. Today we’ll have a look at chart patterns – which ones are the most popular, what do they look like, and how you can leverage them in your own trading!

Bearish Pennants

Once you do this, you are now prepared to find an entry if it breakout out of this pennant. Keep in mind that the markets don’t always move in the way you expect which is why traders should always adopt prudent risk management. To account for this, only ever trade with capital that you can afford to lose. Notice how the stock was stair stepping higher and higher throughout the week.

Pennant Patterns: Trading Bearish & Bullish Pennants – DailyFX

Pennant Patterns: Trading Bearish & Bullish Pennants.

Posted: Mon, 30 Sep 2019 07:00:00 GMT [source]

Pennant is one of these key chart patterns that you can use in your forex trades. In this Pennant guide, we will take a deeper look at the Pennant pattern and its characteristics. Take profit is determined by the level of the flagpole height or the maximum height of the pattern. A take profit must be set at a distance equal to the height of the flagpole or the pennant itself. The breakout of the pennant lower border served as a signal to open a short position. Another indirect signal for this was an increase in trading volumes.

Trading Failed Breakouts at Session Open

One of the popular chart patterns is the Pennant pattern, which resembles a Flag pattern. The breakout after a pennant pattern should occur at or near the point where the trendlines converge, called the apex. When dealing with a symmetrical triangle, however, it is optimal for price to break above or below the trendlines one-half to three-quarters of the way through the pattern.

Once again, our first profit target is equal to the amount risked, projected up from the entry point (25% of the flagpoles height). Once that is done, we aim for the second profit target, which again is equal to 100% of the flagpoles height, projected up from its highest point (90% of its high projected up from the entry point). The bullish pennant signifies a pause in the price movement in an uptrend; the price is expected to continue rising when it breaks above the upper border of the pennant. It is considered a continuation pattern, as it signifies the market taking a breather before resuming its movement.

pennant trading strategy

A Pennant tends to form a shallow retracement (typically less than 38% of the flagpole). A deep retracement is indicative of a triangle rather than a Pennant. Since then I was waiting for this stock to break high made on 3 April 22. 2 weeks before the stock gave closing above 189 then came down to test the support and last week again gave breakout. Pennant patterns are developed based on historical price data, assuming that the market conditions remain relatively stable. However, real markets are influenced by a multitude of factors, including economic news, geopolitical events, and market sentiment.

What is a Pennant Pattern and How Does it Work in the Stock Market

As the term suggests, a breakout refers to the case where an asset price moves through a point where there has been a certain level of resistance or support. But at the same time, new sellers start the shoals selling the stock which results in the breakout of the prices in the same direction as the prior downtrend. But at the same time, new buyers start buying the stock which results in the breakout of the prices in the same direction as the prior uptrend.

PennantPark Investment Corporation’s Unconsolidated Joint Venture, PennantPark Senior Loan Fund, LLC Comp – Benzinga

PennantPark Investment Corporation’s Unconsolidated Joint Venture, PennantPark Senior Loan Fund, LLC Comp.

Posted: Wed, 26 Jul 2023 07:00:00 GMT [source]

The only difference between a pennant and a flag is the fact that the flag is shaped like a rectangle while a pennant has a triangle shape. When identifying the pattern, traders should be careful about the volume. At the initial stages, there is a massive movement, which represents greater volume. The consolidation period has a weak volume, and when the breakout occurs, there is a substantial volume again. Pennant patterns may not work equally well across all markets, assets, or timeframes. Their reliability and effectiveness can vary depending on the specific characteristics of the instrument being analyzed.

However, traders may look for the Pennant pattern on any timeframe according to their own individual trading needs. Sometimes the Pennant shows a price reversal rather than a continuation. To avoid trading in situations like these, a trader could combine the Pennant with momentum oscillators like the RSI or Stochastics. In this way, he/she can try to spot the direction of the overall trend and take positions according to these analysis. In both bullish and bearish Pennants, profit-targets can be placed by measuring the first half of the flagpole’s distance. The calculated distance can then be applied after the breakout candle.