The price behavior in the case of a bullish movement higher should be accompanied on high-volume and strong momentum, with a large percentage of up bars. And the price behavior in the case of a bearish movement lower should be accompanied on high-volume and increasing momentum as well, but with a large percentage of down bars. 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.
Since this is a bearish pattern, traders take a short position once the price fails the pennant formation. If the price reverses, they use a candlestick close above the pennant area as a stop. From the figure below, a bearish pennant pattern can be observed. In this example, the price of Bitcoin (BTC) was on a bearish trend, falling from around $65,000 to about $55,000.
Since the bearish pennant makes it easier to identify the trade stage, traders can easily trade the pennant. The smaller the correction is, the stronger the downtrend and the final breakout usually is. The biggest drawback of a bearish pennant is its dependence on consolidation formation. Just like the bullish pennant, this also can take a long time to form a consolidation. Within this time, there is the possibility of reversals forming in the trend that can affect the trades. So, the best thing to do is to enter the trade before the breakout occurs.
- Bearish Pennants are simply the opposite of the Bullish Pennant.
- The price should decline by the height of the pennant or its flagpole amid increasing volumes.
- Here are the key takeaways you need to consider when trading the bear pennant pattern.
- This breakout is your signal that the bearish trend may continue.
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Some traders prefer to place their stop losses below the breakout candle. Ultimately, it’s up to you to decide which method works for you. Volume provides traders with an idea of how the sudden drop or price rise creating the Pennant flagpole will affect the trend’s direction. The consolidation period should have lower volumes and breakouts should have higher volumes. The bullish pennant pattern can occur over lots of different time frames.
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It’s as if the market is taking a breather following a sharp price move. There are however a few key differences that we should be aware of when labeling a chart pattern as a pennant versus a flag. This was in a very long downtrend with several bear pennant formations on the chart. The first two were handle formations on a cup and handle, which failed. Typically cup and handles are bullish, but these two examples show handle failure.
Can you see how the upper resistance trendline is sloping downward, while the lower support trendline is sloping upward? This creates a convergence of the two trendlines that will lead to a breakout near the apex point. However, in the forex market where the volume figures are not really available, we can use momentum how to trade bearish and bullish pennants indicators to gauge the strength of the breakout. For traders, who prefer to ride the underlying trend of the market, pennant patterns offer an excellent opportunity to trade with the trend. A bearish pennant begins with a strong downtrend where the price of a particular asset is falling, forming a bearish pole.
One of the popular chart patterns is the Pennant pattern, which resembles a Flag pattern. A downtrend in price is a series of lower periodic highs and lows. Once identified, a trendline may be drawn to help contextualize price action.
Bear Pennant: How to Trade the Bear Pennant Pattern
After the continued uptrend, wait for the currency pair price to consolidate and trade between its support and resistance level for some time. 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. Spotting bearish and bullish pennants can be tricky at first because the consolidation is often small when compared to the preceding price move.
Where you place your stop will depend on your chosen entry strategy.
Step 3: Set Profit Targets and Stop Losses
Regarding duration, pennants are short term patterns, while triangles can form over the course of months or even years. The Pennant is a relatively simple and easy-to-spot pattern on the price charts. We will find this pattern on all the timeframes, and the strategies that we are going to discuss will work on any timeframe you trade. In the below examples, we have used 15 minutes, Daily, and Weekly charts to prove the same. All you need to do is to train your eyes well to spot the pattern. Once we master this pattern, we can easily increase the probability of our winning trades.
What is a bullish pennant?
The first step in trading forex with the bull pennant pattern is identifying an uptrend. We are looking for a single or series of upward price breaks to do so. If price action is disjointed, it’s essential that a price bar or series of price bars are moving in the same direction with an upward trajectory. The bullish pennant is a formation that signals the extension of an upward move in price. Read on to learn more about the bullish pennant pattern and how to trade FX pairs using this powerful technical tool.
Most efficient Forex patterns: a complete guide
However, unlike the flag, the pennant pattern is built with converging lines that have an intersection point. Unlike the symmetrical triangle, the pennant pattern is formed much faster. In the exciting realm of trading, understanding and effectively trading bullish and bearish pennants can unlock substantial profit potential. As the name suggests, the flag pattern takes the shape of a flag, while the pennants display a triangular formation. In addition, the pennants use converging trend lines to indicate consolidation, while flags use parallel trendlines.
What is a Pennant Pattern?
It indicates a stronger uptrend and the final breakout as the correction gets smaller. The biggest drawback of a bullish pennant is its dependence on consolidation formation. The time it takes to form a consolidation can be long and undependable. Within this time, there is the possibility of reversals forming in the trend. So, the best cause of action is to enter the trade before the breakout occurs.