How to Trade Bearish and Bullish Pennants in Forex

This is typically marked by lower volume and tighter trading range. Here is an example of a bear pennant that formed on the Bitcoin chart during a downtrend in price. After the clear downtrend in the first half of January a bear pennant formed in the second half of January before the downtrend continued in the first week of February. Price finally rallied in the second and third week of February for a swing back to the upside.

The bearish pennant pattern is a downtrend continuation chart pattern. The formation of this pattern occurs after an active price decline. The picture below shows that the asset has formed a bullish pennant pattern.

TRADE ALERTS “SIGNALS”

Before opening a position, it is necessary to wait for the breakout of the upper or lower border of the pennant, depending on the trend. Next, the position can be opened after the formation of the first candlestick, which closed outside the broken level. The principle of trading the pennant pattern in Forex and other financial markets is quite simple. Having tested the level, the price subsequently reversed, thus forming a bear trap. However, the bears had the opportunity to open a short position at the point of a downside breakout and take profits.

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• However, the breakout from the triangle usually happens quite quickly and can be used to signal a continuation of the downtrend.
• You should also pay attention to the bear pennant trading volume.

– Just like any other indicator, the bear flag can be unreliable. This sell-off should be accompanied by high volume, as this indicates that there is significant selling pressure in the market. Bitcoin is appraoching an extremely strong resistance at around 30k. We can see that the uptrend from 20k to almost 30k in March is steep and without any major corrections.

Symmetrical triangles vs pennants

We just looked at how the cup and handle pattern, which is an important component of candlestick analysis works. In this report, we will look at the bearish pennant pattern and how you can use it in the market. Bearish pennants can be bearish or bearish, depending on the direction of the price breakout. But a bearish pennant is such a poor-performing pattern it can be misleading and cause many false breakouts and small losses. Considering the evidence, the bearish pennant is a bad pattern for traders to use.

A bullish pennant pattern is created when the price action rallies and then moves sideways in a narrowing range before resuming the prevailing uptrend. The bearish flags and pennants both occur in a down-trending market, and they share many similarities in terms of breakout direction and profit targets. 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. However, unlike the flag, the pennant pattern is built with converging lines that have an intersection point.

Spotting the Bear Pennant

The bear pennant is a bearish chart pattern that aims to extend the downtrend, which is why it is considered to be a continuation pattern. In this blog post we look at how the bearish pennant works, its structure, strengths and weaknesses. We will also share a simple strategy to demonstrate how to trade a bear pennant pattern and make profits. A bearish pennant pattern is a technical analysis tool that is used to predict price movements in the stock market. This formation occurs when there is a downtrend followed by a period of consolidation.

Consolidation appears in the form of a sideways price corridor. The symmetrical triangle can serve as a trend reversal signal, something that doesn’t characterize the pennant pattern, which is the continuation pattern. Another considerable difference is that the pennant pattern occurs after a substantial price drop or growth and can’t happen in other conditions.

This is typically signaled by a move below support or a forming bearish candlestick pattern. Consolidation occurs due the two sides fighting to regain control. During consolidation periods many different candlesticks form which could cause some confusion, so be sure to wait for confirmation. Watch this video to learn how to identify and trade the bear pennant pattern with a real-time example. Although bear pennant patterns are reliable, they do have a few drawbacks.

How to identify Bullish Pennant

Finally, you need to ensure you fully understand the risks involved when trading this chart pattern. The sell-offs will make the price drop to rock bottom, and encourage more sellers to enter the market along the way. This will help you filter out false signals and avoid entering trades on the wrong side of the market. In addition, you should use other technical indicators bear pennant pattern and oscillators, such as Moving Averages and RSI, to confirm the breakout. To answer this question, you need to understand the characteristics of a pennant formation, and how it significantly affects the direction of the overall market. This signals a pessimistic outlook on the market, and often leads to further declines after a breakdown from the pattern.

• The latter offers a great risk-reward since the entry is at a higher price and the stop loss is very close to the entry, hence, you are risking very few pips.
• While the price is still consolidating, more buyers or sellers usually decide to jump in on the strong move, forcing the price to bust out of the pennant formation.
• Without a sharp move, the reliability of the formation becomes questionable and trading could carry added risk.

Which can cause an increase in a pressure to the downside from sellers and shorts. Like most other patterns in trading, the Bullish pennant chart pattern signals to traders that changes are taking place in the market. The bullish pennant pattern in Forex means an uptrend continuation. In some cases, with a protracted downtrend, the pattern signals a bearish-to-bullish reversal.

This bearish pennant chart has been autodetected using TradingView’s pattern recognition algorithms. Your stop loss should be placed just above the upper trendline of the pennant, and you can take profit at the next support level below the breakout point. You will see prices move up and down between two converging trend lines, which form a triangular flat shape at the bottom of the market. Finally, a breakout direction is determined by the leading trend.

As this happens, it tends to form a pattern, which is known as a bearish pennant. Traders should pay attention to volume when trading a bearish pennant pattern. Higher volume on the downward breakout is often considered a trend confirmation. This means traders should be vigilant and wait for higher volumes before entering a trade on any breakout situation. A bearish pennant chart pattern is characterized by a sharp drop in price, followed by a sideways trending period. It’s normally used to confirm existing bearish tendencies in a market.

On the other hand, lackluster volumes when the price breaks above the bull flag’s upper trendline increase the possibility of a fakeout. In other words, the price risks dropping below the upper trendline, thus invalidating the bullish continuation setup. It depends on the direction of the trend, as the figure is a trend continuation pattern. A characteristic feature of the pennant is an impulse movement, after which the stage of price consolidation in a narrowing triangle begins. At the same time, there is a decline in trading volumes for the instrument. Upon reaching a narrow range, there is an intense price breakout in the trend direction with increasing volumes.

Place the stop loss above the upper trend line of the pennant. Note that the bull pennant pattern forms during an uptrend, not a downtrend. Bearish and bullish pennants are rare but are very effective when you are trading.