Pennant Pattern for Best Positive Gains
Pennant pattern is a continuation pattern that is used to forecast market changes.
In this article, we’ll look into Pennant Chart Patterns and how to utilize them to place trades effectively.
Table of Contents
- What is Pennant Chart Pattern?
- Bullish Pennant
- Bearish Pennant
- How to Trade Pennant Chart Pattern?
- Difference Between Bullish and Bearish Pennant Pattern
What is Pennant Chart Pattern?
Pennants, like Flag Patterns, are continuation chart patterns that occur after strong market swings.
A strong market move is referred to as a ‘mast’ or a ‘pole’, and it signifies a high price change.
After a big move, the price frequently consolidates between two converging lines, forming a little symmetrical triangle known as Pennant.
The breakout occurs in the same direction as the initial movement and is typically followed by an increase in volume.
Bull Pennant is a bullish continuation pattern that signifies the continuance of an uptrend after the breakout of a brief consolidation phase formed by two converging lines.
The break above the pattern ensures the uptrend’s continuance.
The prior move’s height is considered to determine the magnitude of the breakout move.
The bullish pennant is one of the greatest stock chart patterns because it provides the best trading risk to reward ratio.
Technical analysis is the study of chart patterns, trading activity, and price movement. A bullish pennant chart pattern suggests a momentary halt during an uptrend.
Bear Pennant is a bearish continuation chart pattern that forms during extreme downtrends. It begins with a dramatic decline in price, followed by a little symmetrical triangle, indicating the market consolidation period.
The break below this pattern confirmed the downtrend’s continuation.
The breakout move size, like the bullish pennant, is around the height of the previous move.
In technical analysis bearish pennant represents a temporary pause before downtrend continuation.
How to Trade Pennant Chart Pattern?
A trader must plan when to open a position, takes the profit, and cut losses while trading the pennant pattern.
Open a Position
It is wise to wait for an upper-level breakthrough before entering the long position.
Similarly, for short positions, wait for the lower level to break.
There are two methods to place long or short entries:
First, a trade can be placed as soon as the breakout candles close below (short entry) or above (long entry) the pennant line.
Second, a trader might await a pullback in order to retest the broken pennant level.
Because the entry is at a lower price and the stop loss is fairly near to the entry, this entry provides a favorable risk-to-reward ratio.
Once the breakout has been verified, a trader can put a stop loss below or above the pennant to limit losses.
On a bullish pennant, place a stop below the support trendline.
On a bearish pennant, place a stop above the resistance trendline.
Traders typically use the height of the most recent strong movement (pole or mast), to place take profit level.
Difference Between Bullish and Bearish Pennant Pattern
|Bullish Pennant||Bearish Pennant|
|Formed after an upward move, followed by a small triangle||Formed after a downward move, followed by a small triangle|
|Continuation of a bull market||Continuation of a bear market|
|A breakthrough resistance trend line||A breakthrough support trend line|
- Pennants resemble triangles but are considerably smaller.
- They are followed by significant price rises or declines and indicate that the market is taking a rest before continuing its direction.
- Pennant stock chart pattern, you see, maybe little in size, but they may predict big price movements, so don’t underestimate them.
- Traders are looking for a break over the pennant to capitalize on the momentum.
- Bearish pennants form when a bearish trend stops, and bullish pennants form when a bullish move pauses.
- Bullish and Bearish pennant patterns works best in both bull and bear market
- Pennant patterns are best risk to reward patterns in technical analysis of chart patterns trading.
- Failed pennant pattern is itself a very good signal for reversal trades
- Pennant pattern is very easy to spot and even more easy to trade with.
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One thought on “Pennant Pattern for Best Positive Gains”
There’s definately a lot to learn about this issue. I like all the points you’ve made.
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