How to Trade Bullish and Bearish Pennant Patterns

At this point, in an uptrend, traders can place buy orders to trade with the rising market. However, during a downtrend, this is the right time to exit the market in order to be protected against heavy losses due to the continued downturn. Like with bullish pennants, this causes the market’s price to consolidate. But consolidation can’t last forever, and without enough bullish sentiment to recover, the market turns bearish once more. Once it moves outside of its support line, any sellers who have been holding back jump on – sending it to new lows. A bullish pennant is a technical trading pattern that indicates the impending continuation of a strong upward price move.

Inside the pennant, there is a psychological battle between buyers, who are facing losses, and sellers, who remain calm. The price drop during the Flagpole stage typically occurs on higher volumes, usually as a reaction to a major news event or a break of a significant level. The balance was broken (3) at the very beginning of the following day when the price dropped below the S line. This indicated that the downtrend could continue, which was confirmed later.

Where Should I Set My Stop Loss on a Bearish Pennant Breakout?

To avoid confusion, you must remember that, unlike a triangle, an established upward trend should form before the formation of this pennant. Let’s discuss what you should look at to effectively spot these pennants in your price chart. Gaurav Sharma is a trading expert with over a decade of experience in the crypto industry.

Recognizing this downtrend is crucial for identifying the pattern. Traders should pay attention to the narrowing price range within the pennant. This contraction signals that the market is preparing for a significant move, often leading to a breakout in the direction of the previous trend. Understanding this aspect can help traders anticipate the breakout and position themselves accordingly.

The Relative Strength Index (RSI) has recovered to 34 on the daily chart after flirting with oversold conditions in the past few days. Anticipating the end of a long term trend is one of the most powerful skills a technical investor can acquire. In trading reversal patterns strategy, a key component that separates high probability signals from “fake outs” is volume.

How to Identify a Bearish Pennant?

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. To sum up, it should be emphasized that the pennant pattern is a trend continuation pattern, which has some similarities with the flag and symmetrical triangle patterns. The essence of trading according to this strategy is to determine the target profit at the level of the figure’s flagpole height. Let’s take a closer look at trading the bullish pennant pattern according to this strategy using Tesla stock as an example.

But Our Algo Has Leveled the Playing Field

Fernando has a strong track record to strategize, articulate, and execute investment strategies, financial operations, and trading in developed and emerging markets. The descending wedges pattern breaks upward 75% of the time, indicating a bear trap. It forms as price makes lower highs and lower lows within a narrowing channel, typically indicating selling exhaustion.

• A successful Bearish Pennant is formed in the context of a general downward trend..
• Over time, you’ll begin to “see” patterns forming intuitively, just as experienced traders read emotion directly from the chart.
• The principle of trading the pennant pattern in Forex and other financial markets is quite simple.
• You can enter at the beginning of the trend’s impulse after the consolidation phase ends.

Step-by-Step Strategy to Trade the Pennant Breakout

It starts with a sharp upward movement, creating the “flagpole,” followed by a pause where the price consolidates within converging trendlines. Volume dips during this break but spikes again when the price breaks out above the upper trendline, often reaching a target equal to the height of the flagpole.

• In this article, we’ll break down the bullish and bearish Pennant patterns, how to spot them on a chart, and how to trade them with confidence.
• Resistance and news significantly impact the trading of bearish pennants.
• Therefore, the bullish pennants, just like the bearish ones, cannot be rising.
• News plays a crucial role as negative economic data can strengthen the bearish breakout, while positive news might invalidate the pattern.

This painted a bearish target for AVAX/USD at $11.50 by June, which was a drop of 65% from the price on May 23. The formation of this continuation pattern occurs following a sharp price drop. It looks like a triangular flag as the asset’s price moves sideways, gradually making how to trade bearish and bullish pennants higher lows and lower highs. Then, the downtrend continues with another price fall of a similar size. This pattern has three main components – the pennant, flagpole, and a breakout.

It will not be difficult for a trader to predict further price movement when these patterns are formed in the market if you know the basic principles and criteria for entering a trade In this case, a short position must be opened after the breakout of the pennant lower border. In addition, the price tested the lower border, where the bears went ahead. This is also emphasized by growing volumes, which is one of the criteria for determining the pattern. According to this strategy, the take profit is defined by the height of the pennant itself. That is, from the highest to the lowest point formed in the pattern.

🎓 Pro Level Charting Skills & Strategies for Investors and Traders!

By combining these chart formations with Fibonacci retracements and volume analysis, traders can improve their decision-making and risk management. While no pattern is 100% reliable, understanding their structure and success rates enhances trading accuracy. The profit target should be based on the height of the flagpole. Measure the distance from the start of the downtrend to the end of the consolidation phase and project it downward from the breakout point. This projection provides a realistic target for capturing profits while trading the bearish pennant pattern. The main difference between bullish and bearish pennants lies in the direction of the trend and the expected breakout.

Category 2: Continuation Patterns (Signaling a Pause)

Once the price fails, the pennant area traders take a short position or trade options to the bearish side. TrendSpider is a great tool that can filter and identify bear pennants using its scanner. The Pennant pattern is a trend continuation pattern, easily recognizable by its distinctive shape and volume behavior. While it shares similarities with both the Flag and symmetrical triangle patterns, it stands out with its quicker formation and converging trendlines. By understanding and recognizing Pennant patterns, traders can effectively incorporate them into their strategies, navigating the markets with confidence.