Trade Share CFDs for your favourite companies and 50+ U.S. stocks. Click here.
Refer a friend
Title Icon

Advanced

Identify hidden opportunities, master risk management,
and become an expert Forex trader.

Pennant Patterns: How to Trade Bearish and Bullish Pennants

Pennant Patterns work as a continuation signal in the forex market and help identify the ideal entry and exit price points. They can also predict future bullish and bearish market movements. Let us dive deep into what Pennants Patterns are and how you can trade the bullish and bearish versions of the same.

What are Pennant Patterns?

Pennant Pattern is a continuation pattern formed by large currency pair price movements that help identify the direction in which currency pairs are headed. The pattern resembles the shape of a flag, which denotes a drastic increase or decrease in the currency pair prices, continued by a price fluctuation in a particular range, finally followed by a breakout either in the upward or downward direction.

  • The flagpole is the large/sharp movement in currency pair prices
  • The consolidation phase occurs when currency pair prices converge
  • The breakout is when the price continues to move in the direction of the market trend
Pennants pattern graphic

Characteristics of a Pennant Pattern

Flagpole

The flagpole is the beginning of the Pennant Pattern. It is formed either as a steep downward or upward sloping trendline.

  • If the flagpole is sloping upward, it signals a continued uptrend
  • If the flagpole is sloping downward, it signals a continued downtrend
Volume

Volume provides traders with an idea of how the sudden drop or price rise creating the Pennant flagpole will affect the trend’s direction. The consolidation period should have lower volumes and breakouts should have higher volumes.

Breakout level

There are two breakout levels. The first breakout occurs as the flagpole ends. The second one occurs after the currency pair price trades within a price range between the resistance and support levels for some time.

  • If the breakout is in the upward direction, it confirms an uptrend
  • If it is in the downward direction, it confirms a downtrend

Types of Pennant Patterns

1. Bullish Pennant Pattern

Bullish Pennant Pattern is an uptrend confirmation pattern that is formed after a sharp increase in the currency pair prices. Once the price increases, the currency pair starts trading within a range between its support and resistance levels, and fluctuates by dropping a little overall. Soon after, the currency pair prices break out in the upward direction and start rising continuously, confirming the uptrend.

  • Traders can place buy/entry orders at the beginning of the flagpole or at the end of the actual flag, where the price fluctuates within a range
  • The stop-loss order can be placed at the end of the flag
  • The take profit order can be placed at the topmost price level before there is a market reversal in the long term

Two elements to identify the Bullish Pennant Pattern

  • A prior continued uptrend in the market over a few hours or days
  • A price consolidation after the uptrend ends and the prices trade between their support and resistance levels before breaking above the resistance level
Pennants pattern graphic
2. Bearish Pennant Pattern

Bearish Pennant Pattern is a downtrend confirmation pattern that is formed after a sharp decrease in the currency pair prices. Since the price decreases, the currency pair starts trading within a range and fluctuates with a little overall increase. Soon after, the currency pair prices break out in the downward direction and start decreasing continuously, confirming the downtrend.

  • Traders can place sell/exit orders at the beginning of the flagpole
  • The stop-loss order can be placed at the end of the flag where the price fluctuates within a range
  • The take profit order can be placed at the 50% or 100% level of the flagpole in the downward direction

Two elements to identify the Bearish Pennant Pattern

  • A prior continued downtrend in the market over a few hours or days
  • The currency pair price movement (after the downtrend ends) between its resistance and support level before the price breaks below the support level
Pennants pattern graphic

How to trade forex with a Pennant Pattern?

1. Identify a strong bullish or bearish trend

The first step to trade the Pennant Pattern is to identify either a continued uptrend or downtrend, which occur after the formation of at least a few consecutive candlesticks. If there are a few green (bullish) candlesticks in the price chart, they signal an uptrend, and if there are a few red (bearish) candlesticks in the price chart, they signal a downtrend.

2. Analyse price consolidation right after the big price move

After the continued uptrend, wait for the currency pair price to consolidate and trade between its support and resistance level for some time. At this point, in an uptrend, traders can place buy orders to trade with the rising market. However, during a downtrend, this is the right time to exit the market in order to be protected against heavy losses due to the continued downturn.

3. Draw the Pennant’s flagpole and flag

The flagpole is drawn by connecting the bullish or bearish candlesticks where the prices are either increasing or decreasing continuously. Next, connect the high and low price points in the charts to draw the flag’s body.

4. Identify the breakout level

The breakout level in the Pennant Pattern occurs when the currency pair prices either cross the resistance price level or drop below the support price level. In an uptrend, the currency pair prices moving beyond the resistance level is the price breakout that provides traders with entry signals. In a downtrend, the prices falling below the support level is the price breakout signalling exit.

5. Place stop-loss orders

Stop-loss orders can be placed right below the support and resistance area during an uptrend and above the support and resistance area during a downtrend.

6. Monitor trades and exit when needed

Once traders have made an entry/exit decision and placed the stop-loss order according to a prior trend while trading the Pennant Pattern, they can monitor the trades for a few days or weeks till the trend reverses. Traders can then exit/enter the market before reversal.

Trade Pennant Patterns and identify strong market trends

The Pennant patterns help traders identify strong market continuation trends and provide them with the ideal entry and exit points. Start trading with Pennant Patterns on Blueberry Markets and benefit from competitive spreads, 24/7 customer support, and a real-time price tracking mechanism. Sign up for a live trading account or try a risk-free demo account.

Recommended Topics

  • The Beginner’s Guide to MQL5

    MetaTrader, as a platform, has built-in functions that assist in technical analysis and trade management while also allowing traders to develop their own indicators and trading strategies.

  • How to Use DeMarker Indicator For Forex Trading

    Every trader needs to know precisely when to enter or exit a forex market.

  • How to Use The Accelerator Oscillator For Forex Trading

    The Accelerator Oscillator indicator helps detect different trading values that protect traders from entering bad trades.

  • A Forex Trader’s Guide to Awesome Oscillator

    When you understand market momentum, you can better identify market reversals.

  • What is Money Flow Index?

    The Money Flow Index can analyse the volume and price of currency pairs in the market.

  • What is The Ichimoku Kinko Hyo Indicator?

    The Ichimoku Kinko Hyo indicator provides traders with the market’s current momentum, direction and trend strength.

  • Top Pullback Trading Strategies

    Pullback trading strategies provide traders with ideal entry points to trade along with the existing trend.

  • What is High Wave Candlestick?

    The High Wave Candlestick pattern occurs in a highly fluctuating market and provides traders with entry and exit levels in the current trend.

  • What is the Parabolic SAR indicator?

    Identifying market trends becomes easier with the Parabolic SAR indicator as it provides the ideal entry and exit signals in strong trending markets.

  • What is Currency Correlation?

    Currency correlations help trade multiple currencies in the forex market by identifying the market trends of each currency pair.

  • Price Action Trading Strategy

    A Price Action Trading Strategy helps find ideal entry and exit points depending on expert opinions, news announcements, or technical indicators.

  • Average True Range

    Average True Range (ATR) helps in identifying how much a currency pair price has fluctuated. This, in turn, helps traders confirm price levels at which they can enter or exit the market and place stop-loss orders according to the market volatility.

  • Moving Average Crossover

    The Moving Average Crossover is a valuable tool to find the middle price-point of a trend in forex trading. When currency prices crossover their current moving averages, it helps traders identify the favorable buying or selling points for the currency.

  • What is the Bullish Engulfing Candlestick?

    Bullish Engulfing Candlesticks helps in identifying an uptrend reversal in the market. This candlestick pattern stands out because a trader does not need to wait until the entire pattern is completed to enter a trade.

  • How To Trade The Gartley Pattern

    The Gartley pattern helps identify price breakouts and signals where the currency pairs are headed. The pattern is also widely used in the forex market to determine strong support and resistance levels.

  • How to Trade Forex With NFP V-Shaped Reversal

    A Non Farm Payroll (NFP) V-shaped reversal refers to a sudden increase or decrease in the currency pair prices right after an NFP report is released.

  • Candlestick Patterns: Top Candlestick Charts Every Trader Should Know

    Candlestick patterns depict the price movement of assets in a graphical manner. Candlestick patterns also enable traders to predict market behaviour.

  • What is the Evening Star Candlestick Pattern?

    Evening Star Candlestick Patterns help traders identify ideal exit levels in the forex market by signalling a slowed upward momentum and strengthened downward momentum.

  • How to Use Ichimoku Cloud in Forex?

    The Ichimoku Cloud provides a clear market trend direction to the traders and helps them make market decisions accordingly.

  • How to Trade Forex With Renko Charts

    Renko Chart is a technical indicator that provides strong market trend directions by filtering out minor price movements

  • What are Ascending and Descending Triangle Patterns?

    The Ascending and Descending Triangle Patterns confirm continued trends in the forex market.

  • How to Identify Cup and Handle Pattern in Forex Trading

    The Cup and Handle Pattern is a technical price chart that forms the shape of a Cup and a Handle, which indicates a bullish reversal signal.

  • What is the Head and Shoulders pattern?

    The Head and Shoulders pattern is a trend reversal indicator that predicts bullish to bearish and bearish to bullish reversals in the forex market.

  • What is the Hammer Candlestick Pattern?

    Hammer Candlesticks enable traders to identify potential market reversal points, determine the ideal time to enter the market and place buy or sell orders accordingly.

  • What is The Opening Range Breakout Strategy

    The Opening Range Breakout (ORB) Strategy involves taking forex positions when the currency pair prices break below or above the previous day's high or low

  • Morning Star Indicator

    The Morning Star Indicator helps identify strong trend reversals in the forex market and enables you to take trade position entry decisions accordingly.

  • How Does Stochastic Indicator Work in Forex Trading?

    Stochastic Indicator helps traders identify overbought and oversold market conditions that substantially lead to market reversals.

  • Favourite Fib Fibonacci Retracement

    Fibonacci retracement strategies help traders identify the market's support and resistance levels, trend reversal points, and entry and exit decisions.

  • Heikin Ashi Candlestick Pattern

    The Heikin Ashi Candlestick pattern is almost the same as the traditional candlesticks, with one big difference—the former is an averaged out version of the latter.

  • Multiple Time Frame Analysis in Forex

    By monitoring different currency pairs in different time frames, you can make your Forex trades more successful and profitable.

  • What are Bollinger Bands?

    The Bollinger bands can help identify overbought and oversold market conditions, protecting you against placing any orders that could lead to losses.

  • Andrew's Pitchfork Trading Strategy

    Andrew's Pitchfork is a Forex trading strategy that can predict protracted market swings and help you in identifying potential market trends that can indicate potential exit and entry points.

  • Fibonacci Retracement

    Fibonacci retracements are one of the most popular methods for predicting currency prices in the Forex market. Predicting upward or downward market movement can help traders with accurate price analysis for exiting or entering the market.

  • Trading in Volatile Markets

    Forex volatility is the measure of how frequently a currency's value changes. A currency either has high volatility or low volatility depending on how much its value deviates from its average value.

  • The ABCD pattern

    One of the most classic chart patterns, the Forex ABCD pattern represents the perfect harmony between price and time.

  • The Bearish Gartley Pattern

    The Bearish Gartley pattern was introduced in 1935, by H.M. Gartley in his book, “Profits in the Stock Market”. The pattern helps Forex traders in identifying higher probabilities of selling opportunities.

  • The Bullish 3 Drive pattern

    The Bullish Three Drive pattern in Forex trading is a rare pattern that gives traders information about the Forex market's potential at its most Bearish point, and in turn, suggests probabilities for a market reversal.

  • What is the MACD Indicator?

    The Moving Average Convergence Divergence (MACD) indicator helps traders quickly identify short-term trend directions and reversals in the forex markets. You can use the MACD indicator to determine a currency pair price trend's severity and measure its price's momentum and even identify the bearish and bullish movements in the currency pair prices.

Guide to Forex
Trading indicators.

Enter your details to get a copy of our
free eBook

Thank you, please check your inbox for your ebook.

Ads BG

Start a risk free
demo account

News & Analysis

Catch up on what you might
have missed in the market.

Runner graphic

Ready to trade at
Blueberry Markets?

Your best trading experience
is a click away