Pennant Pattern in Forex is also one of the continuation patterns that form after a strong price movement in the market trend.
Pennants are more of symmetrical triangles only that with pennants price does not have to test the levels of support and resistance several times.
What are the pennant patterns
The pennants are continuation chart patterns that form after strong moves inform of a simple triangle. They form both in uptrend and down trend.
Therefore, we have a bullish pennant and a bearish pennant.
Pennant patterns behave the same way as flags. The only difference is in their shape formations.
A pennant is more flat and triangular while a flag is sloppy and rectangular. We shall cover flags in the next session
More so,
A pennant pattern takes less time to form and always have strong price movements before and after the formation of the pattern.
So the distance after break is likely to be the same as the distance before the formation of the pattern.
The confirmation of the pennant pattern in forex is at the breakout on either sides depending on the trend.
In this case,
The pennant is in a downtrend (bearish pennant). Therefore the pattern confirmation is a breakout on the support line to the downside.
On the other hand, if the pennant pattern in forex forms in an uptrend, confirmation is when the price action breakout the resistance line to the upside.
How to trade pennant pattern in forex
In an uptrend.
When the pennant pattern in forex forms in a rising uptrend, the breakout at the resistance line gives us confirmation for a buy signal. Wait for the candle to close above the resistance line,then buy/long the pair
let’s look at an example below
The above chart shows a bullish pennant.
We bought when the bullish candle closed above the resistance after the breakout.
Take profit target 1 is equal to the size of the pennant (H1) and Profit target 2 is equal to the distance moved by price before formation (H2) of the pattern. You can check the chart above.
Our Stop loss is set slightly below your entry point slightly below the next low.
Since the pennant is a continuation pattern, we trade in the direction of the trend.
In addition, to get the maximum profit target, look at the distance price moved before the formation of the pattern and project the same after the break.
The minimum take profit target is equal to the size of the pennant.
In a downtrend
Let’s look at the bearish pennant pattern now;
The confirmation for Sell entry is the candle close below the support line (lower side).
Profit target H1 is equal to the height/size of the pennant (H1) as illustrated above.
Stop loss is set slightly above your entry point just above the next high.
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