Understanding bullish and bearish pennant patterns

The breakout was confirmed with strong volume and a gap up open the following day. GEECEE held above the 265 level on the retest, confirming it as a new support area. This successful breakout from all-time highs often leads to further upside as new investors take notice and existing shareholders add positions. This is a trend continuation trade setup in which the bear power is overruled by the strength of the bulls and the price resembles the shape of an inverted J. The range of this setup becomes the target whenever the price gives an opportunity for a trade setup.

Therefore, first, you need to find an upward price impulse in the price chart, after which consolidation begins within the boundaries of the converging lines, that is, a bullish pennant is formed. It depends on the direction of the trend, as the figure is a trend continuation pattern. From that moment, the formation of a larger bearish pennant pattern began. When the pattern is formed, there is a sharp decrease in volume, which characterizes the pennant. As in a bearish flag, sellers push the price down, after which there is a short-term consolidation phase of the asset and a continuation of the downtrend.

Two elements to identify the Bullish Pennant Pattern

Channel patterns are technical chart formations that illustrate the movement of a security’s price oscillating within a parallel upward and downward trend. The upper and lower boundaries create a visual channel that contains the price action over a specified timeframe. The upper trendline connects the highs, while the lower trendline connects the lows of the price bars. Point D is taken as a horizontal price range for price to face resistance. Once it got broken and a new higher high got created, the momentum has potentially been converted from bearish to bullish; this same resistance has the potential to act as a new support structure. Observe how price retested to the support, formed a candlestick pattern and suggested a long trade setup.

What Timeframe Price Charts Does a Pennant Pattern Form On?

We can also be innovative and trade against the bias when breakout happens in opposite direction. These form the backdrop against which Flags and Pennants develop, often emerging after a sharp, directional market move. As with all tools and indicators, bull pennants have a unique list of pros and cons.

1. As in the image above, conservative traders will wait for the horizontal resistance to finally break and retest this broken resistance.
2. Use a stop market sell order or stop limit sell order when managing bullish pennant pattern risk.
3. Chart patterns alone lack fundamental economic context about the security, ignoring variables like earnings, news events, etc. that impact price.
4. The initial take profit should be at the lower side of the pennant hoist.
5. Next, the position can be opened after the formation of the first candlestick, which closed outside the broken level.
6. Price gaps up and closes above the previous gap down, indicating an aggressive shift of momentum from bearish to bullish sentiment.

For our EUR/USD trade, for example, you might be risking 10 or 20 points in exchange for 200 points of potential profit. Those traders who have been waiting to buy the market leap in and send it skyward once more. For successful trading in the financial markets, it is important to understand technical analysis as it reflects the psychological and fundamental components of what is happening worldwide. The pattern construction implied further price movement along the upper trend line after a short stage of asset consolidation in a narrowing range.

Important resistance levels will be tested and if broken, could accelerate the uptrend. The pipe top pattern shows a transition in market psychology from bullish to bearish sentiment. This uptrend reaches a point of resistance where sellers gain strength. Finally, sellers dominate and the price breaks support, reversing the former uptrend. The broadening bottom pattern is a bullish reversal pattern that signals potential strength in the downtrend. The broadening bottom pattern forms when the price makes successively lower lows and higher highs, resulting in diverging trend lines drawn connecting the lows and highs.

Next, connect the high and low price points in the charts to draw the flag’s body. If you are not familiar with the Ichimoku cloud, the chart is going to look really busy. The only thing you need to focus on in the above example is that the break down through the flag occurred while price action was below the flag.

1. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument.
2. Like with bullish pennants, this causes the market’s price to consolidate.
3. Therefore, it is necessary to open a long position after the close of the first candlestick formed above the pattern.
4. This structure reflects consolidated trading activity confined between support and resistance trendlines.
5. Partial profits are booked and a trailing stop is used to maximize gains as the uptrend extends.
6. The pennant pattern consists of a flagpole and converging trendlines with the converging trendlines indicating a temporary pause before the resumption of the previous trend.

What is a bull trap in trading and how to handle it

The Japanese yen remains under pressure, trading near a five-month low against the US dollar. This trend is primarily driven by differences in monetary policy approaches. Cristian has more than 15 years of brokerage, freelance, and in-house experience writing for financial institutions and coaching financial writers. In addition, you can try out the acquired knowledge for free on a demo account using a wide range of trading instruments provided. Let us study the strategy on the example of the 30-minute BTCUSD chart.

Step 3: Set Profit Targets and Stop Losses

A symmetrical triangle is a chart pattern characterized by two converging trendlines connecting a series of sequential peaks and troughs. Check our video by our trading analysts on how to trade bearish and bullish pennants how to identify and trade the bullish pennant pattern. Pennant formations primarily signal continuation patterns, indicating a pause before the prevailing trend resumes. Based on the 30-minute Gold price chart above, the formation of the bull pennant began with a strong bullish move followed by price moving sideways and then a break above the upper trendline.

The final 5th wave reflects euphoria as buyers rush to get in before the trend ends. The psychology behind this pattern relates to the steady buying pressure required to sustain a series of higher highs and lows. As buyers gradually gain control, each successive peak reflects their increased optimism and willingness to pay higher prices. The orderly, step-like rises reveal sustained positive sentiment rather than unsustainable Vertical spikes.

A measuring objective for the pattern is made by taking the distance from the start of the flagpole up to the top (bull market) or bottom (bear market) of the pole prior to the pennant being formed. It should start once the sharp move breaks a resistance or support level. The distance is measured either to the top or bottom of the pennant depending on the trend direction.