Readers should note that a pennant’s appearance is not a guarantee that there will be a price continuation. Experienced traders typically use trading indicators or technical analysis tools such as moving averages to confirm the pennant pattern. This shape is similar to the shape of the pennant flags typically used in sporting events. The pennant starts with the “pole” or “flagpole,” which represents the previous trend. The sideways movement comes after the pole, where the price of an asset consolidates or trades within a range of prices or between the support and resistance trendlines for some amount of time. This price range decreases over time, forming the “flag” shape when the support and resistance trendlines converge with each other, as shown in the figure below.

A pennant pattern can be bullish or bearish depending on the direction of the first flagpole, shown below. The flagpole is an initial strong movement to the upside or downside. Before a Pennant Pattern forms, there is a significant price move in one direction. It’s essential to understand that the Pennant Pattern is not a standalone pattern but rather a part of a more extensive trend.

What Is The Pennant Pattern & How To Trade With It

See our Terms of Service and Customer Contract and Market Data Disclaimers for additional disclaimers. Always do your own careful due diligence and research before making any trading decisions. Not sure if you’re ready to commit real capital to your pennant strategy? Open an IG demo account to put it to the test with $10,000 in virtual funds.

Relying solely on pennant patterns without considering other factors or confirming indicators may lead to poor trading decisions. Identifying a pennant pattern requires some subjective interpretation of the price chart. Traders may have different opinions on the shape and boundaries of the pattern, leading to variations in their analysis.

Bullish Pennant Trading Strategy

However, real markets are influenced by a multitude of factors, including economic news, geopolitical events, and market sentiment. In this chapter, we will discuss the best ways to trade the triangle chart pattern, and how to profit from this pattern. The bullish version is called the bullish pennant, while the bearish version is called the bearish pennant. This includes identifying an existing uptrend and the formation of a pennant after that uptrend has begun. A bullish Pennant Pattern occurs after an uptrend and indicates a potential continuation of the uptrend.

This could be a sign that this upward move is over, and you should consider exiting like so many other traders are doing. As you can see above, this trade moved a total of 70 pips on the second move, where we entered the trade based on the strategy. To place your stop loss, determine a support/resistance area and place it below this in a buy trade or above this area in a sell trade.

What I mean by this is most technical traders have heard of the patterns, as these are easy to recognize. Most of the trading strategies documented for flags and pennants are straightforward and somewhat boring to be honest. The Pennant pattern is a chart pattern that can sometime define trend continuation where a period of consolidation is followed by a possible breakout. To filter out false signals, some traders may apply the Pennant pattern with momentum oscillators.

This difference between supply and demand is what causes the sideways movement. Eventually, there is a breakout and the price continues into an uptrend at the point where the levels converge. If the price breaks below the pennant, I would not enter a trade based on the rules of this strategy. However, there are strategies you can use to trade this, but for the PPG trade strategy, if the prices break below the pennant in a bullish pennant pattern, then avoid trading.

Are there any specific entry and exit signals associated with the Pennant Pattern?

While pennant patterns can suggest a potential price continuation in the direction of the previous trend, they do not provide a precise prediction of the magnitude or duration of the movement. On the other hand, a bull flag is formed when there is a sharp price movement in an uptrend, followed by a period of consolidation where the price range narrows, forming a rectangular shape. Trading bearish pennant trading strategy pennants involves taking a short position in anticipation of a downward price movement. In this section, we’ll delve into entry and exit strategies, as well as risk mitigation techniques for bearish pennants. It is considered a continuation pattern, as it signifies the market taking a breather before resuming its movement. They use it to identify the possible continuation of a previous trend.

Risks

The entry point is above the high of the flagpole, with a distance equal of 10% of its height. Embarking on the Pennant Pattern Forex Trading Strategy involves mastering the nuances of the bull pennant pattern and the bear pennant pattern. Each step in this article is designed to guide traders in capitalizing on these patterns, whether in bullish or bearish market conditions, to make informed and strategic trading decisions. Like any trading strategy, trading on pennant patterns involves risk. Traders should set stop-loss orders to manage potential losses if the price does not move as expected.

Pennant Patterns vs. Flag Patterns

Some patterns may form over a few hours, while others might take several weeks. The sensitivity to the timeframe can affect the accuracy of the pattern and the subsequent price movement. The consolidation period for a flag pattern is longer, often spanning several weeks, while a pennant will generally last between one and three weeks.

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. Jumping on this bandwagon reduces the likelihood of the trade going against you. Our second and final target will be at the 100% projection of the flagpole as measured from the breakout point. You will also see the bar that triggered our second target circled in green as well. Trading the Symmetrical Triangle on EURCHF Currency Pair using the H4 Chart.

Let’s take a closer look at trading the bullish pennant pattern according to this strategy using Tesla stock as an example. Before entering a trade based on this formation, you of course need to have a predetermined entry point, stop-loss and profit target. After the price has entered the consolidation area (which allows for the measurement of the flagpole), we set our entry point at 10% of its height above its highest point. Yes, like any technical analysis tool, pennant patterns can produce false signals. They may indicate a potential price continuation when the market is actually reversing or moving sideways.

The hourly chart below shows a bearish pennant pattern characterized by decreased volumes during construction. Having previously determined the local support and resistance levels, the trader has a rough idea of the scenario where the price will go. The picture below shows that the asset has formed a bullish pennant pattern. After intensive price growth, the price began to consolidate within the borders of the pennant. At the same time, trading volumes on the Volume technical indicator began to decline. The pennant pattern belongs to trend continuation patterns, like other chart patterns, such as the flag or the ascending triangle.

Stop loss should be set below the support level according to risk management. Identifying a bullish pennant on a price chart is sometimes difficult, especially for beginners, due to its similarity to symmetrical triangle and bull flag price patterns. However, if you know the peculiarity of constructing this chart pattern, it will not be hard to identify. Conversely, a bearish pennant forms during a downtrend, with a sharp price drop forming the flagpole, followed by an upward sloping consolidation period. In both cases, the trend is expected to continue once the price breaks out of the pennant. Pennants and wedges are both technical chart patterns used in technical analysis to analyze market trends and predict future price movements.

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