pennant trading strategy: The Definitive Guide to Trading the Bull Pennant Pattern

Considering the complexity involved, it can be confusing to spot the pennant patterns manually. Luckily, we have developed a Pennant Pattern indicator for MT4/MT5 that can identify pennant patterns on the chart with high precision. After the consolidation state, the price prepares to break above/below the pennant. In addition to the breakout through the pennant, there is another breakout through the highest/lowest point made by the pennant.

• Before entering a trade based on this formation, you of course need to have a predetermined entry point, stop-loss and profit target.
• As per the previous idea, ETHUSDT had a nice impulse, indicating a potential uptrend in the market.
• If you are looking to trade forex online, you will need an account with a forex broker.
• As with the upward price breakout scenario, we should want to see higher trading volumes to give us the conviction that this is a true breakout.

Deep retracements beyond that invalidate the pattern, signal divergence, and a possible shift in price trend, even if only temporary. Upright if it’s a bullish Pennant candlestick pattern, upside down if it’s a bearish Pennant candlestick pattern. Here are the key takeaways you need to consider when trading the bear pennant pattern.

The rule of thumb with these pennant patterns that the second breakout will move as far as the first. The first bullish trend, as you recall me saying, moved 78 pips in 3 hours. Volatile stocks aren’t the only ones making flag and pennant patterns. Check out this price movement from QQQ back in the summer of 2017.

From both the above inferences, we can conclude that the market is more than likely to continue with the predominant uptrend. If you are looking to trade forex online, you will need an account with a forex broker. If you are looking for some inspiration, please feel free to browse my best forex brokers. IC Markets are my top choice as I find they have tight spreads, low commission fees, quick execution speeds and excellent customer support. He is the most followed trader in Singapore with more than 100,000 traders reading his blog every month…

Understanding the Pennant Pattern

Higher https://g-markets.net/s mean there are likely to be serious sellers at work and the move lower is more likely to be sustained. While the breakout pattern is a technical signal then, there will often be a fundamental reason behind the price move. For instance, suppose a small biotechnology stock has just reported positive clinical results for a cancer drug. Momentum day trading may suit you if you want to make money in the stock market. Here are a few frequently asked questions regarding bear pennant and forex trading. Trading Strategies Learn the most used Forex trading strategies to analyze the market to determine the best entry and exit points.

There is also a bearish pennant chart pattern and you generally just flip whatever I am about to describe as you look for them in a downtrend. The cover price will then be set at the initial flagpole’s height minus the breakout price. In terms of risk management, a stop loss would generally be placed just above the upper trendline. 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.

From equities, fixed income to derivatives, the CMSA certification bridges the gap from where you are now to where you want to be — a world-class capital markets analyst. To place you stop loss, determine a support/resistance area and place in below this in a buy trade or above this area in a sell trade. Any and all information discussed is for educational and informational purposes only and should not be considered tax, legal or investment advice. A referral to a stock or commodity is not an indication to buy or sell that stock or commodity. This could be a good opportunity to get into Square shares and ride the continuing wave of this stock.

Next, wait for price pull back to the resistance line for the retest. 🟢 RISING THREE “Rising three methods” is a bullish continuation candlestick pattern that occurs in an uptrend and whose conclusion sees a resumption of that trend. The first bar of the pattern is a bullish candlestick with a large real body within a well-defined uptrend. The chart consists of a black triangle and a red bullish line, forming the pole of the Pennant. The chart clearly shows how you can perform a technical analysis to arrive at a potential trading opportunity. If the price keeps on trending upwards, you can monitor the price action carefully then hold the last 1/3 of the trade position for as long as you want.

At the same time, I’m sure you’ve noticed that I kept these strategies as systematic and straightforward as much as possible. If the price makes this kind of move, it’s clear that the buyers who got “squeezed” finally broke out. So let me share with you the common pitfalls of using this pattern first before I reveal the “secrets” of how to profit from it.

How to Identify and Use the Bear Pennant in Forex Trading?

Finally, a flag pattern developed and on the open of 6/11, EGN gapped higher through the previous day flag pattern. In the above example, you would want to short the break of the pennant trend line, with a stop above the middle of the upper trend line. The reason you should use the middle of the trend line, is due to the possibility of a quick fake out before resuming the direction of the breakout.

• Bearish Pennant PatternIn both bullish and bearish Pennants, profit-targets can be placed by measuring the first half of the flagpole’s distance.
• Personally, I stay in a trade with this strategy until I see price action consolidating by analyzing Parabolic SAR and studying the price movement.
• A Pennant pattern has to be preceded by a strong up or down move that resembles a flagpole.

The flagpole and pennant trend lines were easily identifiable in this trade – it won’t always be so obvious though. PENN stalled around the $40 mark and traded in a range for the next few weeks, making lower highs but holding steady on the low end. A nice pennant formed from this price movement and PENN exploded back over the $30 mark by mid-July. This pattern is primarily used by swing traders looking for stocks that are currently “taking a breather” from their current trend progression. Once the pattern breaks, the signal sounds the alarm for an entry point. Traders use pennant patterns to learn when a cooling trend may be ready to reignite.

The Definitive Guide to Trading the Bull Pennant Pattern

The breakout of the prices is usually accompanied by an increase in the volume. The stop loss for this setup would be below the apex of the pennant pattern. Pennant Pattern is a candlestick pattern that goes hand in hand with trend trading. So, before getting right into the topic, let’s comprehend a trending market with its components. To limit losses, the trader places a Stop Loss order at the resistance level. But in the real world, there will be a lot of times where patterns will fail, and false breakouts will occur.

Price consistently reaches higher lows and lower highs, creating two converging trendlines that form this conical shape. However, the pennant includes a flagpole at the beginning of the pattern, which is not present in the formation of the symmetrical triangle. This sharp move is accompanied by heavy volume and marks the beginning of an aggressive move within the current trend. Price then pauses, forming the body of the pennant, before breaking out in the direction of the trend with renewed vigor. A bearish pennant begins with a strong downtrend where the price of a particular asset is falling, forming a bearish pole. This downward trend in price then halts and the price begins to rise instead.

As an example, suppose you have perceived a pennant trading strategy pennant pattern for sterling against the dollar. Having observed the pattern, you could place a buy order just above the pennant´s upper trendline. Imagine sterling rose from $1.36 to $1.40 in a sudden rally, but then consolidated around the $1.38 level. As with all trading strategies, it’s crucial to have a stop-loss order in place should the breakout prove to be a false dawn. Depending on your strategy, it may be appropriate to set the stop loss at the lowest previous price point of the pennant phase.

One extra clue that a bullish pennant is forming is falling volume as price consolidates. Then, when the market begins to break out of the pattern, volume spikes. It’s important not to confuse bullish pennants with other patterns such as triangles, falling wedges and bullish flags. With BTC in a similar bearish pennant formation, both remain in danger of forming a lower low and moving to the next significant level of support. The price is in the accumulation phase between two daily structures, 1$ and 1.4$. On the 4h timeframe, the price is creating a pennant and had the market had a false breakout from the channel on 1.5$, it got the liquidity in order to retest the support.

Once price breaks out to the upside, makes sure the candlestick must close outside of the downward trendline. Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more.

Wait and watch for price to break the upward trendline which was drawn connecting the increasing bottoms . A great strategy to consider when using the Pennant candlestick pattern is supply and demand, which you can learn from the Maurice Kenny Day Trading Program. It’s essential to use the pattern with proper risk management in mind. Chart patterns Understand how to read the charts like a pro trader. Pennants and wedges are both continuation patterns but there is a difference between them. The prices should move in the prior direction after the breakout.

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An uptrend is a sequence of higher highs and higher lows, while a downtrend is a set of lower lows and lower highs. Chris Douthit, MBA, CSPO, is a former professional trader for Goldman Sachs and the founder of OptionStrategiesInsider.com. His work, market predictions, and options strategies approach has been featured on NASDAQ, Seeking Alpha, Marketplace, and Hackernoon. All information on The Forex Geek website is for educational purposes only and is not intended to provide financial advice. Any statements about profits or income, expressed or implied, do not represent a guarantee. Your actual trading may result in losses as no trading system is guaranteed.

We provide content for over 100,000+ active followers and over 2,500+ members. Our mission is to address the lack of good information for market traders and to simplify trading education by giving readers a detailed plan with step-by-step rules to follow. The range of results in these three studies exemplify the challenge of determining a definitive success rate for day traders. At a minimum, these studies indicate at least 50% of aspiring day traders will not be profitable. This reiterates that consistently making money trading stocks is not easy.

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. By September, the consolidation phase of the trend ended when the resistance level was broken in a series of three straight sessions with big gains. Just to level set your expectations, it’s extremely difficult to find charts that converge into a pennant and then break through the cloud with such momentum as the above example. However, if you are able to identify the setup, you will be able to recognize you may have a real winner on your hands. The key thing to remember in both the flag and pennant formations is that there was an impulsive move with little to no retracement.

However, if you are able to identify another perspective on the formation, you essentially can develop an edge over other market participants. The second is to use the general rule of thumb that markets will often revert briefly before a full breakout begins. In these cases, the previous support turns into resistance – and resistance into support.