A chart pattern is a visual formation that can be discovered by carefully examining a chart. Chart patterns that are completed indicate the beginning of a new move, a new leg of the price movement, or a change in the direction of the price movement. As the completion of a chart pattern indicates the beginning of the next big swing trade, a trader can easily identify when it is the right time to enter the market for swing trading.
Based on the patterns' ability to reflect the underlying asset's directional bias, chart patterns are classified as continuation patterns and reversal patterns. The completion of a continuation pattern indicates the best chance of a price movement continuing in the trend direction. Reversal patterns, on the other hand, indicate that the market may soon reverse its current trend. The best trading opportunities for forex traders are both continuations and reversals. Pennants pattern falls under the continuation patterns category. Other type of this pattern includes Rising Wedges, Falling Wedges. In contrast, reversal patterns include Head and Shoulders,Double Top, Triple Top and many more.A Pennant is a small triangle made up of numerous forex candles that looks like a symmetrical triangle. Pennant shapes are typically categorized as bearish or bullish depending on the direction of the movement.
1. Key characteristics of a Pennant pattern
Pennants are short-term patterns typically completed in one to three weeks. Triangles, on the other hand, typically take much longer. Bullish and Bearish Pennant patterns can be traded using the same approach. However, Bullish Pennant patterns have a long bias and Bearish Pennant patterns have a short bias. You will see the following if you look at a Pennant continuation pattern:
Pennants categorized under continuation chart pattern.
Depending on the direction of the trend, pennants may be bullish or bearish.
During periods of consolidation, pennants show converging lines, similar to flag charts.
These are sideways and horizontal in a chart pattern.
After the breakout, prices should move in the same direction.
There is always a flagpole at the beginning of a Pennant pattern, which sets it apart from other patterns. Prior to the symmetry triangle comes the flagpole, which is the first strong move.
The upward or downward trend will continue at the end of the flagpole, and at the end of the consolidation period.
The Pennant is the triangle that forms between the flagpole and the breakout, when the market consolidates. A triangle is formed when two trend lines converge - the Pennant.
2. Bullish Forex Patterns
Bullish forex patterns indicate the reversal of a prior downtrend. At the same price level, the price makes two dissimilar lows. These bullish patterns indicate the traders considering beginning a long position to gain profit from any upward trajectory. Let's read more about the different bullish patterns.
Ascending triangle:
Generally, in technical analysis, an ascending triangle is used and, it is a chart pattern. When the price goes up, then it is formed. Rising the price allows for a rising trendline to be drawn along the swing lows and a horizontal line to be drawn along with the swing highs. An ascending triangle is formed by these two lines. Ascending triangles are also known as continuation patterns.
Rounded bottom:
In technical analysis, a rounding bottom is used and, it is also a chart pattern. It is identified with the assistance of price movements that appear in graphically form. At the end of extended downward trends, these rounding bottoms are visible. Several traders deemed that the time frame of this pattern can vary from weeks to months.
Rising wedges:
It is a form of technical indicator, which suggests a reversal pattern often seen in bear markets. When the price gets rise with pivot lows and highs converging toward the apex, this pattern is shown in charts. Moreover, it forms a point with the slope of the highs when the slope of the lows is steeper. When both the slope of the highs and the lows are falling, then this pattern occurs.
Cup and handle:
In the stock market, the cup and handle chart pattern plays an important role to make money. In general, the cup appears in the form of “U” while the handle is the retracement from the prior top to about one-third of the vertical height of the cup. The cup and handle appear both as reversal and continuation patterns.
Double bottom:
It is a bullish reversal pattern, which forms at the bottom of a signal and downtrend. In a declining market, it is the end formation. The double pattern frequently forms the English language letter “W” because of a change in the trend direction and the two-touched low from a downtrend to an uptrend.
Triple bottom:
The triple bottom is a visual pattern that indicates the bullish outlook for the commodity, stock, and index. In general, a triple bottom appears in three roughly equal lows in a graphical chart and, the movement can be seen in these equal lows along with the price movements. To enter a bullish position, the formation of the triple bottom is seen as an opportunity. The first bottom out of three bottoms can simply be normal price movement, while the second one is indicative of bulls preparing for a probable reversal and gaining momentum. The third and last bottom indicates that when the price breaks, bears may capitulate.
Inverted head and shoulders:
An “inverse head and shoulders” is also known as head and shoulders bottom. When the price action of security meets the price falls to a trough and then goes up, the price falls below the former trough and then increases again; lastly, the price falls again but not as far as the second trough, then it is identified.
Bullish pennants:
A bullish pennant indicates a pause in the price movement middle throughout a strong uptrend. It allows traders to get profit from the rest of the price rise and go long. The bullish pennant appears when a sharp price rises.
3. Bearish Forex Patterns
A bearish pattern is a technical chat pattern and, it signals lower prices to come. The bearish pattern consists of up candlestick served by great down candlestick that eclipses, or the smaller up candle.Let's read more about the different bullish patterns.
Falling wedge
A falling wedge is also known as descending and is either used as a reversal pattern, or continuing pattern, depending on where it is found on a price chart. This lesson will help to identify the pattern, and how you can use it in order to look for probable buying opportunities.
Bearish Pennants
It forms a continuation pattern that indicates a pause in the movement of a price halfway through a strong downtrend. Moreover, it allows traders to go short. The bearish pennant follows after a sharp price drop and looks like a triangular flag as the price moves sideways, slowly making lower highs and higher lows.
Descending Triangle
It is a bearish chart pattern, which is used in technical analysis and, is created by drawing one trend line that connects a series of lower highs. And a second horizontal trend line that links a series of lows. Many times, traders watch for a move below the lower support trend line. This is because it suggests that the download momentum is building and a breakdown is imminent. When a breakdown occurs, traders enter into short positions and aggressively help impulse the price of the asset even lower.
Rounded Top
A rounding top is a price pattern, which is used in technical analysis. Moreover, it`s recognized by daily price moments in specific the tops, which when graphed, form a downward sloping curve. From the technical analysis of price information, it can be said that a rounding top form at the end of an extended upward trend. And that this price pattern shows a reversal in the long-term price movement. This rounding top pattern can develop over many days, weeks, months, or even years, with long time frames in order to complete predicting changes in trend.
Double top
This extremely bearish technical reversal pattern forms after an asset reach a high price two successive times with a modest decline between the two highs. Moreover, it is established once the asset`s price falls below a support level, which is equal to the low between the two previous highs.
Tripe top
The triple top chart pattern is used to predict the reversal in the movement of an asset`s price. In the tripe top char pattern, there are three peaks that the asset may no longer be collecting, and that lower prices may be on the way. Although triple top occurs on all time frames, for the pattern to be considered a triple top and it must occur after an uptrend. However, the opposite of the triple top is the triple bottom, which directs the asset`s price is no longer falling and could head higher.
Head and shoulders
A head and shoulder patterns are like chart information and, it appears as a baseline with three peaks where the outside two are close in height and, the middle is highest. Moreover, in technical analysis, this pattern describes a definite chart formation that predicts a bullish to a bearish trend reversal. This pattern is considered one of the most reliable trends reversal patterns. It is one of many patterns that signal, with changing the degree of accuracy, that an upward trend is nearing its end.
4. Differentiate both Bullish & BEARISH
In order to tell if a pennant is bullish or bearish, you'll need to keep an eye on two elements. The pole is the movement that precedes a marked upward movement. The second sign is a price consolidation with its support and resistance lines forming a roughly symmetrical triangle.
When identifying a bearish pennant, look for a consolidation between the resistance and support lines. There will be a roughly symmetrical triangle formed between the support and resistance line, which shows the market, is in conflict between positive and negative sentiment.
Bullish pennants
Consolidate after a market moves upwards for some time
Bullish signs indicate the market will continue to rise
Markets break out when they move beyond their resistance lines
Bearish pennants
The standards of a strong portfolio do not change regardless of the current market. In order to invest, the first thing you need is a clear understanding of your financial objectives. Retirement, vacations, home ownership and more are among the major expenses for most Americans. It is important to define your goals before making investment decisions.
The asset allocation of your portfolio can be built once you know your goals and their timeline. Your portfolio will include a selection of investments and what percentages you'll hold for each. Individual stocks can be quite volatile, so someone nearing retirement may want to avoid them. Perhaps etfs and bonds would be better investments.
If you're still a long way from retirement, you might consider investing in individual stocks. Individual stocks have a higher risk profile and higher return potential than most other investments. As long as you have a while until retirement, you can take some risks for those earnings. However, you shouldn't just leave your portfolio alone as it ages. Your investments need to be rebalanced. The goal is to bring your portfolio's complexity back in line with your intended asset allocation. Over time, returns affect your portfolio, hence the necessity for this.
At the end of the day, it is impossible to guarantee gains on the investment market. You can only make sound decisions and maintain strong investment tendencies. Moreover, avoid trading based on emotions, since this can lead to disastrous outcomes.
6. How to Trade Bullish and Bearish Pennants
Trading can be done not just on the Bullish Pennant pattern but also the Bearish Pennant pattern, however the long bias will be on the Bullish Pennant and the short bias on the Bearish Pennant. In the example below, we demonstrate how to trade a Bullish Pennant appearance in GBP/NZD.
Following a sudden, sharp move in price, traders should look to enter trades on confirmation of the breakout. When a pennant forms after a sharp movement in price, a breakout and a continuation in that direction seems likely.
The entry point is the candlestick close to the pennant. It is likely that the move to the upside will continue in this example since the break was so significant.
For more conservative traders, a stop loss can be placed underneath the pennant to limit downside risk, because this was quite a big move. Traders should find this level of protection acceptable.
It's important to remember that the markets do not always move in the way you expect, so traders should always practice prudent risk management. You should only ever trade with capital you can afford to lose to account for this.
Traders can measure the distance between the beginning of the flagpole and the Pennant to set their target levels, and then duplicate that distance from the price breakout following the Pennant.
7. Pennant Forex Trading Strategy
Following are the Steps to Trading:
Step 1 Using the Parabolic SAR indicator
You will be able to see where the main trend is headed when you use the Parabolic SAR indicator. If you want to trade specifically with this indicator, check out our Parabolic SAR strategy here. Using this strategy, we can use this chart to help us make a great trading decision when it's time to enter or exit a position.
Step 2 Determine whether a bullish or bearish trend is strong
In most cases, you will see this occur when two or more consecutive bullish or bearish candles are formed. The candles on the chart are not retracement candles; they should either be unsustainable upwards or downwards.
A EURUSD 30-minute chart was used to take this picture. There is an indication that the trend is pushing up when the parabolic SAR dots are below the candles. When the dots are below the candles, the trend is upward, and when they are above the candles, the trend is downward.
Step 3 Perform a consolidation analysis after a big price change
The 78 pip upward move led to many buyers exiting the trade and taking their profits. There will most likely be a short battle between the buyers and sellers at this point before a new wave of buyers comes in and drives prices back up.
Step 4 Draw the forming pennant
Mark the occurrence of Strong Bullish candles
The second step is to draw a line on the highs and lows. This will now prepare you to find another entry if it breaks out of this pennant.
Step 5 The Breakout
One of the best things about this strategy is seeing the price breakout of the pennant you drew on the chart.
Based on the rules of this strategy, I would not enter a trade if the price broke below the pennant. Although there are strategies to trade this, if the prices break below the pennant in a bullish pennant then you should avoid trading. In the same way, a bearish pennant should be avoided. Do not take the trade if the price breaks above the pennant.
Step 6 Make The Trade with this Pennant Forex Strategy
The trend is on the rise right now, so if the trend continues, you are in a great position! Alternatively, draw a horizontal line at the top of the pennant when the price breaks the top of the pennant.
Final thoughts
The pennant pattern is used to identify continuations of sharp price movements. In order to make trading decisions, the best technical traders always look at the charts for clues. The traders can use chart patterns to gain valuable insight and spot the most advantageous entry points. To plan when to open a position, take a profit, and cut a loss, you should always keep a chart pattern cheat sheet handy.
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