How to Trade the Pennant Pattern

The chart notes this retest as confirming the trend reversal towards a downside, solidifying confidence in the new downtrend direction. A dead cat bounce is an exhaustive phase of a market when the price retraces or exhausts till the average of the bearish move (50%) and respects that level. The short setup is strengthened by collecting additional confluences from signals provided by other technical indicators. The pattern emerges when the price breaks the recent lower high known as the break of structure and forms a higher high.

Technical traders take this as a sign that the original ascending price move is going to resume. This makes the bullish pennant pattern particularly sought after, as it can offer an early indication of significant upward price action. You open a buy position with a bullish pennant after the price breaks out the pattern’s upper border when there is a clear signal of the uptrend continuation. The setup consists of an impulsive move in a stock that lasts over 2 or 3 days. The stock will run all day and then towards the end of the day, form a flag or pennant pattern. The next day, the stock will gap through the resistance or support levels and then repeat the same trading pattern.

When the price breaks out of the pattern it usually continues in the same direction, showing no signs of confusion as to where it should be. A Pennant is usually a method of pattern trading based on a continuation pattern. Strike offers a free trial along with a subscription to help traders and investors make better decisions in the stock market. Chart patterns are used to confirm trends, choose profit targes, and setup stoploss. The harmonic pattern above is called a bullish bat pattern; the X point becomes the start point, which is connected to the last higher high of the price recorded as ‘A’.

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After breaking out of the flag pattern, price rallies to reach not only the minimum price objective but rallies to make higher highs. The stops for the bullish flag are placed just at the low prior to the break out from the bullish flag. A flag pole is a long, and often straight line, that happens when the price of an asset declines sharply. It is this flag pole that separate the bearish pennant with other patterns. On the other hand, the term pennant refers to a flag or banner that is longer than the hoist.

Inverse Head and Shoulders Pattern

Others opt for continuation patterns like flags or pennants that signal a stock’s move might accelerate. Volume, previous support and resistance levels, and overall market conditions should also be considered when evaluating chart patterns. Patience and discipline are required to wait for high-probability setups.

This information has been prepared by IG, a trading name of IG Markets Limited. 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. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result.

How to Spot a Bearish pennant

As you know by now, with this pennant guide, pennants appear after consolidation periods. In the case of a bullish pennant, it is a bullish continuation pattern that signals the extension of the uptrend at the end of consolidation. When we take a look at the characteristics of the bullish pattern, we can see some clear differences from the bearish pennant. On the flagpole front, the bullish version shows a series of higher highs and higher lows.

The point of looking for patterns with less than 23.6% retracements is a way to only identify the flags and pennants, which are trending strongly. Now that we all have the same base understanding of the pattern, let’s dive into the three how to trade bearish and bullish pennants strategies for trading the flag and pennant patterns. Traders often apply Fibonacci levels to the initial surge that forms the flagpole.

1. Both the bullish pennant and the bull flag are technical analysis patterns that are typically seen in bullish markets.
2. He success rate of a pennant pattern could depend on a variety of factors including win rate, trader’s approach in terms of risk-management, or risk-reward ratio over a larger number of trades.
3. Entries are taken on a close above the pattern’s high in order to trade a pipe bottom.
4. The range of the depth is usually taken as a target range whenever the price breaks out of the pattern and initiates a trade setup.
5. Harmonic patterns are specific price structures formed within trends that are based on precise mathematical ratios and measurements.

We then subtract $0.80 from the breakdown trigger of $5.98 (2) to arrive at a measuring objective of $5.18 (3). You then place your initial stop just above the resistance trendline to cut losses. For bullish pennants, you should place your stop beneath the support trendline.

CFD trading guide

The V pattern is considered a reversal pattern, marking the transition from a downtrend to an uptrend. It signals that the prior downward move has exhausted itself and upside momentum is building. The next expected move is for the rally to continue, as buyers regain control and push prices higher.

The rounding top pattern is a bearish reversal pattern that signals a potential downwards breakout. The rounding top pattern is formed when the stock hits a new high and then begins to consolidate in a rounded arc rather than a sharp peak. The rounding top pattern on a price chart resembles the shape of a dome. Once it breaks, the power of buyers is lost, and sellers start to accelerate their selling positions.

1. Validation occurs on a close above the high of the pattern, indicating bulls have overpowered bears.
2. Pennant pattern is one of the most common continuation chart patterns that occurs when a security price encounters a significant surge or decline, which is followed by a brief consolidation before resuming.
3. Equities may tip their hand and show where they may be headed, but events out of the company’s control may oppose the expected price movement.
4. This sudden spike in volume indicates that the market has increased buying activity, pushing the price further up.
5. In trading, maximizing potential profits is as important as limiting losses.
6. A continuation pattern is usually a sign that a currency pair, stock, or any asset will continue moving in the original trend.
7. A pennant pattern forms in all global financial markets including stock markets, forex markets, bond markets, cryptocurrency markets, indices, futures markets, and options markets.

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