pennant trading strategy: Trading Flags and Pennants Formations

pennant trading strategy: Trading Flags and Pennants Formations


Get comfortable with the asset you desire to trade and see what patterns tend to work best for you. The strategy and/or technical indicators you have chosen to use and on what time frames they are most reliable must support your theory. Depending on risk appetite, stop loss can be placed on a bullish Pennant candlestick pattern at the low of the breakout candle or beneath the pennant to limit downside risk.

day trading

With the Bearish Pennant Forex Strategy, we will be entering short orders when the breakout happens to the downside. Funded trader program Become a funded trader and get up to $2.5M of our real capital to trade with. Elearnmarkets is a complete financial market portal where the market experts have taken the onus to spread financial education. ELM constantly experiments with new education methodologies and technologies to make financial education effective, affordable and accessible to all. The main difference between pennants and wedge patterns is pennants are sideways and horizontal.

Further Reading on Forex Trading Patterns

However, no matter how you place a profit target, it will be below the bear pennant pattern on your price chart. The bearish pennant pattern suggests that downward pressure is on the market. To enter the market, place a sell market or sell stop-limit/market order beneath the pennant’s lower trend line. The price target for pennants is set by measuring the initial flagpole’s height to the point at which the price breaks out from the pennant.

The top-performing pennants are those with breakouts near the yearly lows. Many traders use pennants in conjunction with other chart patterns or technical indicators that serve as an additional confirmation. To learn more aboutstock chart patternsand how to take advantage oftechnical analysisto the fullest, be sure to check out our entire library of predictable chart patterns.

Flag Pattern Trading Strategy: A simple but Profitable Chart Pattern

Although the pattern can develop on shorter and longer timeframes, it may be more beneficial to some traders to find the pattern on longer timeframes. This is because the Pennant’s consolidation period can be anywhere between one to three weeks. However, traders may look for the Pennant pattern on any timeframe according to their own individual trading needs. The Pennant pattern has short consolidation spam of one to three weeks and has converging trend lines during this period. For example, assume the first flagpole goes from a price of $50 to $40, forms a pennant through a consolidation around $44, and breaks out from the pennant at $42.

Although pennant trading strategy patterns are reliable, they do have a few drawbacks. But at the same time, new sellers start the shoals selling the stock which results in the breakout of the prices in the same direction as the prior downtrend. But at the same time, new buyers start buying the stock which results in the breakout of the prices in the same direction as the prior uptrend. After the consolidation phase, the breakout of the prices takes place in the same direction as the prior trend.

Trading Bearish and Bullish Pennants

The entry point is above the high of the flagpole, with a distance equal of 10% of its height. 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. An ascending triangle is a chart pattern used in technical analysis created by a horizontal and rising trendline. The pattern is considered a continuation pattern, with the breakout from the pattern typically occurring in the direction of the overall trend. The market is creating higher low higher high, it means that the we are in consolidation phase.

What are the main differences between a Symmetrical Triangle … – Investopedia

What are the main differences between a Symmetrical Triangle ….

Posted: Sat, 25 Mar 2017 18:10:17 GMT [source]

They’re formed when a market makes an extensive move higher, then pauses and consolidates between converging support and resistance lines. After that consolidation phase, a trader is looking for a breakout candle. The bullish pennant trading strategyis continuation strategy where you use one of the common Forex chart patterns called the bullish pennant to enter into a long trade.

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. 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. When the lines converge, there will then be a breakout from the pennant chart, continuing the previous trend of the pole. Both the symmetrical triangle and the pennant have conical bodies formed during a period of consolidation.

  • Again, just as we did with Target 1, this distance should be applied from the start of the breakout point.
  • The prices should move in the prior direction after the breakout.
  • Technical traders take this as a sign that the original ascending price move is going to resume.
  • At the same time, cut bait quickly if the trade turns against you.
  • Traders should look to enter the trade on confirmation of the breakout after a sudden, sharp move in price.
  • The parabolic showed us five consecutive crosses above the candles.

If the stock is breaking out of the pattern and is going in the direction of the cloud, then you have confirmation the trend will likely continue. Look for the trend line to help define the trend to ensure there is continuity over multiple days. Once you can see the larger formation, look to buy the open of the stock once it gaps through the previous day’s flag or pennant. In full disclosure, I do not trade during the first 20 minutes; however, this doesn’t mean there aren’t opportunities for other traders.

In the above example, the stock creates a pennant when it breaks out, experiences a period of consolidation, and then breaks out higher. The upper trend line resistance trend line of the pennant also corresponds to reaction highs. Traders could have watched for a breakout from these levels as a buying opportunity and profited from the subsequent breakout.

pennant trading

If you had bought the currency pair in any of the bull Flags, you would have made profit. The reason is that the price action has maintained an upward trend throughout. These pullbacks give you a nice opportunity to trade the market in the form of a flag pattern.

price is creating

The initial powerful move up indicates that the buyers have begun to shown strength in the market. Following this push, the market goes into a consolidation phase, where the price makes higher lows and lower highs. A pennant pattern and a trend are closely related because the pennant pattern is the pullback/retracement phase of a trend. Thus, the pennant pattern is basically a trend continuation pattern.

These include comprehensive descriptions and images so that you can recognize important patterns scenarios and become a better trader. Here are some real examples showing the bullish and bearish pennant patterns that readers can use as a reference. 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.

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