HOW TO TRADE PENNANTCHART PATTERN

in-depth tutorial

BULLISH PENNANT EXPLAINED

BULLISH PENNANT ILLUSTRATION

Bullish "Pennant" chart pattern illustration
Direction: Continuation
Type: Bullish
Occurrence: High
Common term: Short - Medium

BULLISH PENNANT PRICE ACTION STRUCTURE

  • A steep upwards price action initiates from 1 till finding first resistance 2, creating the pennant's pole.
  • Price action reverses direction from 2 and goes downwards till finding first support 3.
  • PrPrice action bounces between (2 and 3) range, creating lower high(s) and higher low(s).
  • The pattern is completed when price action reverse direction from the last touch to the lower pennant border and goes upwards till it breaks the upper border at point 4.

NOTES ON BULLISH PENNANT

  • Before the breakout, at least two highs (including the pennant's pole high) and two lows are needed for a valid pattern.
  • Volume is usually high at the pennant's pole, as well as when breaking the pennant's upper border.
  • This pattern is commonly found on short and medium-term time-frames.

HOW TO TRADE BULLISH PENNANT

  • Trade entry: the pattern is traded after price action breaks the pennant's upper border at point 4.
  • Take profit: identified by measuring the pennant's pole, which is the vertical distance between points (1 - 2), that measurement is then applied from the breakout point 4.
  • Stop loss: the pennant's lowest low 3.

BULLISH PENNANT REWARD:RISK

  • This pattern is known for its high R:R.
  • R:R depends on the pole's high to pennant's lowest low distance (2 - 3), compared to the pennant's pole height (1 - 2).
  • Always remember that the stop loss level explained above is absolute, the actual stop loss rate for your trade setup should be a bit beyond that level to give the trade setup some room to breathe, and of-course calculations for position size and R:R should be done with respect to that rate.

BULLISH PENNANT REAL EXAMPLE

Real example for a bullish "Pennant" chart pattern, using the daily chart of EUR/CAD on XM's MT4 platform
Currency pair: EUR/CAD
Timeframe: D1
Breakout: 11-Aug-2015
Platform: MT4
Broker: XM

BULLISH PENNANT FOREX TRADE SETUP

  • Trade entry: at the closing rate of the candle after breaking the upper border at point 4
  • Take profit: 893.6 pips - usual measurement applied from point 4
  • Stop loss: 372.2 pips (R:R 2.401) - set at 7% of target measurement, beyond absolute SL

NOTES ON THIS TRADE SETUP

  • Price action retested the breakout rate.

BEARISH PENNANT EXPLAINED

BEARISH PENNANT ILLUSTRATION

Bearish "Pennant" chart pattern illustration
Direction: Continuation
Type: Bearish
Occurrence: High
Common term: Short - Medium

BEARISH PENNANT PRICE ACTION STRUCTURE

  • A steep downwards price action initiates from 1 till finding first resistance 2, creating the pennant's pole.
  • Price action reverses direction from 2 and goes upwards till finding first support 3.
  • Price action bounces between (2 and 3) range, creating lower high(s) and higher low(s).
  • The pattern is completed when price action reverse direction from the last touch to the upper pennant border and goes downwards till it breaks the lower border at point 4.

BEARISH PENNANT REAL EXAMPLE

Real example for a bearish "Pennant" chart pattern, using the H4 chart of GBP/USD on Oanda's MT4 platform
Currency pair: GBP/USD
Timeframe: H4
Breakout: 7-Aug-2014
Platform: MT4
Broker: Oanda

BEARISH PENNANT FOREX TRADE SETUP

  • Trade entry: at the closing rate of the candle after breaking the lower border at point 4
  • Take profit: 366.6 pips - usual measurement applied from point 4
  • Stop loss: 114.2 pips (R:R 3.210) - set at 7% of target measurement, beyond absolute SL

NOTES ON THIS TRADE SETUP

  • Price action retested the breakout rate.