Forex Course

114. How To Trade Bearish & Bullish Pennant Patterns


The Pennant is both a bullish and bearish continuation pattern that is used by technical analysts across the globe. This pattern can easily be identified on the price chart and is typically used for trading the upcoming price movements. In an ongoing trend, when the instrument experiences a significant upward or downward movement, followed by a brief consolidation, the Pennant pattern is formed.

Pennant Pattern’s Key Characteristics

A Flagpole The Pennant pattern always begins with a flagpole, and that is the initial strong move.

Breakout Level – Two breakouts should occur in this pattern. The first one will be at the end of the flagpole, and the second one should be after the consolidation period.

The Pennant Itself A triangular pattern is formed when the market consolidates between the flagpole and the breakout, and we call that a Pennant.

How To Trade The Pennant Pattern?

The Pennant is a relatively simple and easy-to-spot pattern on the price charts. We will find this pattern on all the timeframes, and the strategies that we are going to discuss will work on any timeframe you trade. In the below examples, we have used 15 minutes, Daily, and Weekly charts to prove the same. All you need to do is to train your eyes well to spot the pattern. Once we master this pattern, we can easily increase the probability of our winning trades.

Trading The Bullish Pennant Pattern

Example 1

In the below EUR/GBP chart, we have identified the formation of a Bullish Pennant Pattern.

We must always look to take long or short positions depending on the breakout in the Pennant chart pattern. If we find a bullish Pennant pattern, we must wait for the price action to break out in the north direction to take a buy trade.

In the below chart, you can see that when have placed a buy order after the price action broke the Pennant’s upper trend line. The take-profit should be placed at the higher timeframe’s resistance area, whereas the stop-loss order should be below the lower trend line. The best part about trading this pattern is that it offers a good risk to reward ratio, and most of the trades hit the targets within a few hours.

Example 2

In the below AUD/NZD chart, we have found another Bullish Pennant pattern.

Here, we can see the market has started a new downtrend, and we have placed a buy order right after the price broke the upper trend line. We can see our trade hitting the TP within a few hours. If we find this pattern in active trading hours, or when any trading session is about to begin, it is advisable to take bigger trades because opening trading hour breakouts have higher chances of succeeding.

Trading The Bearish Pennant Pattern

In the image below, you can see that we have identified a Bearish Pennant pattern on the GBP/NZD pair.

In the below chart, we can see that a brand new downtrend has just begun. The first leg of the pattern (flagpole) was quite strong. When the price action broke below the lower trend line, it is an indication for us to go short in this pair. The take-profit is as placed as same as the size of the flagpole, and stop-loss was just above the pattern formation.

That’s about Bullish and Bearish Pennant pattern and how to trade them along with appropriate risk management. Following money management principles is as crucial as entering the market at the right time. If you have any questions, let us know in the comments below. Cheers!

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Forex Price-Action Strategies

Price Action Trading: The Morning Star at a Breakout Level

Breakout is the first thing that attracts the price action traders to keep eying on a chart. Then, correction/consolidation followed by reversal candle breaching consolidation support/resistance is the signal to trigger an entry.

The breakout level plays an important role, which often becomes consolidation support/resistance and produces the reversal candle. Sometimes a breakout level produces even stronger reversal patterns such as Morning Star and Evening Star. When that happens, it attracts more traders and brings more liquidity. In today’s lesson, we are going to demonstrate an example where the breakout level holds the price as support; produces the Morning Star to offer a long entry. Let us get started.

The chart shows that the price heads towards the North with good bullish momentum. On its way, it makes a breakout at the highest high. The pair then produces a bearish reversal candle to consolidate around the breakout level. The buyers are to keep an eye on this chart. If the breakout level produces a bullish engulfing candle closing well above consolidation resistance, they may trigger a long entry.

The chart produces a Doji candle (tiny bullish body with long shadows both sides). The breakout level holds the price, for which the buyers are going to be very keen to keep an eye on this pair. If the next candle comes out as a bullish engulfing candle, it would also form a candlestick pattern called Morning Star.

The chart produces a bullish engulfing candle closing well above consolidation resistance. A bullish engulfing candle is enough to attract the buyers to go long in this chart. The combination of the last three candle forms Morning Star, which is a strong bullish reversal candlestick pattern. The buyers may trigger a long entry right after the last candle closes. Stop Loss is to be set below the breakout level and Take Profit is to be set with 1R. Let us proceed to the next chart to see how the trade goes.

The next candle comes out as a bullish candle. The buyers seem to have taken control. The price may hit the target soon.

It takes only two candles to hit the target. Traders make some green pips in a hurry. If we analyze this trade, we find

  1. The price makes a bullish breakout and comes back at the breakout level.
  2. The breakout level works as support and holds the price
  3. It produces a bullish engulfing candle closing above consolidation resistance.
  4. It produces a candlestick pattern called Morning Star as well.