Upon reaching a narrow range, there is an intense price breakout in the trend direction with increasing volumes. The pennant pattern belongs to trend continuation patterns, like other chart patterns, such as the flag or the ascending triangle. Pennant Patterns are considered powerful continuation indicators, allowing traders to identify the best entry and exit points in the forex market. They also predict future bullish or bearish movements of currencies accurately. So, let’s dig deeper into what they are and how you can make use of them while trading!
A breakout below the pattern’s lower boundary signals that the sellers are back in control, creating an opportunity for short trades after the breakout. The price slows down its fluctuations, forming a small symmetrical triangle. Typically, trading volumes decrease, signaling a wait-and-see stance by market participants. The features of the Bearish Pennant outline and the existence of similarly named patterns in technical analysis can sometimes confuse beginner traders, leading to questions. Determine where the price might be headed and what you will do if the market moves against you. A successful Bearish Pennant is formed in the context of a general downward trend..
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It begins with a steep downward move, followed by a consolidation phase within converging trendlines. As with the Bullish Pennant, volume decreases during the pause and increases during the breakout, usually driving the price down to a target equal to the height of the flagpole. Think of the Pennant pattern as a quick, exciting pit stop in a race. It begins with a dramatic sprint—an impulsive price movement—followed by a brief rest where the price consolidates into a tiny symmetrical triangle. During this pause, trading volume decreases, creating a sense of calm before the storm.
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According to risk management rules, a stop loss is set a little lower than the crossing of the pattern lined. A position is opened after the price breaks out the upper edge of the pattern. The picture below shows a hanging man Japanese candlestick pattern that signals the trend reversal down.
What are Pennant Patterns?
Secondly, a price consolidation that forms a roughly symmetrical triangle with its support and resistance lines. Bearish pennants and bullish pennants can indicate that major price action is on the cards – so understanding them is crucial for any technical trader. Here’s an introduction to how pennants work, and how to trade them.
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Start by identifying one of these ten patterns on a stock you already own, and practice setting your Stop Loss and Take Profit levels before you commit any new capital. You must always use a disciplined risk management trading strategy. If a pattern suggests a major price move, that move should be backed by a corresponding surge in trading volume.
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In crypto markets, ascending flags often appear during strong altcoin rallies or explosive upside Bitcoin moves. The shallow retracement (typically 25–38% of the flagpole’s height) signals that buyers remain in control, stepping in quickly on minor dips. A double top forms when price tests resistance twice without breaking higher, indicating exhaustion in an uptrend. The neckline break confirms the reversal, with a 75% success rate.
- Then, when the market begins to break out of the pattern, volume spikes.
- It marks a brief consolidation period within an existing trend.
- Next, the position can be opened after the formation of the first candlestick, which closed outside the broken level.
- The price movement during the formation of a bearish pennant is determined by the height of the flagpole or the height of the pennant itself.
- When technical traders spot a bearish flag pennant, they take it as a sign that the downward price move is going to continue once the market breaks below its support line.
74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Trading forex (foreign exchange) or CFDs (contracts for difference) on margin carries a high level of risk and may not be suitable for all investors. There is a possibility that you may sustain a loss equal to or greater than your entire investment.
- Keeping these bullish-to-bearish odds in mind builds conviction for trading a completed bearish pennant flag.
- Now, what happens to the market once the price trades beyond the trendline?
- Like in the case of bullish pennants, decreasing volume is a good indicator of the bearish pennant’s formation.
- Once the Bearish Pennant appears on the chart, the price is expected to resume its downward trend, which is what traders and investors anticipate.
- Set your stop loss above the consolidation phase of the bearish pennant.
- Only risk capital should be used for trading and only those with sufficient risk capital should consider trading.
Bear pennants are one of the most popular bearish patterns to be bearish on. Look for the price to fall out of the pennant to confirm a bearish breakdown. Pennant chart patterns are short-term continuation formations that signify a brief consolidation after a significant, sharp price movement. They are highly valued because they often lead to a renewed burst of momentum equal in size to the initial move. Understanding the two key components “the flagpole and the pennant body” is essential for trading them successfully.
But after it consolidates, the price will continue its trend before it pauses. Margined FX and contracts for difference are complex leveraged products which carry a high level of risk and can result in losses that exceed your initial investment. In this strategy, you set a target profit at 50% of the flagpole’s height. After the breakout, you’d open a position and set the target profit at half the distance of the initial movement. A stop loss is placed just below the intersection of the trendlines to avoid any pitfalls.
So, you need to trade it well in order to confirm each element of how to trade bearish and bullish pennants the setup before committing capital. For example, in GBP/USD on a 1-hour chart during a Bank of England statement, a sudden rally formed the flagpole. A tight pennant followed, then price broke upward with high volume, matching the flagpole’s height in projected movement.
A Double Bottom is the inverse, forming two distinct troughs after a downtrend. The market’s failure to maintain a new trend is often a strong signal that it is about to change direction. The inverted version is the Head and Shoulders Bottom, signaling a reversal from a downtrend to an uptrend.
Whether it’s a trader in Tokyo or an AI model in London, the market still oscillates between confidence and caution, leaving visible footprints in price. Over time, you’ll begin to “see” patterns forming intuitively, just as experienced traders read emotion directly from the chart. Continuation patterns help traders recognize when a trend is consolidating rather than reversing — valuable insight for managing open positions. In volatile markets like crypto, this behavior becomes even more visible. Rapid reactions to news, liquidations, and sudden sentiment changes create exaggerated candlestick patterns. Recognizing these signals early helps traders understand where conviction lies and when a shift might be coming.
A bullish pennant forms during an uptrend, indicating a continuation of upward price movements. Conversely, a bearish pennant forms during a downtrend, signaling a continuation of downward price movements. A lack of range expansion during the consolidation phase is another key characteristic of a bearish pennant.
Validate the Trend and Flagpole
Another indirect signal for this was an increase in trading volumes. The price movement during the formation of a bearish pennant is determined by the height of the flagpole or the height of the pennant itself. 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.
A bearish flag appears after a sharp decline, followed by a period of consolidation, resembling a flag on the chart. This pattern signals a potential continuation of the downtrend upon breaking below the lower trendline. By mastering both bearish pennants and bearish flags, traders can better anticipate market movements and strategize accordingly.