Pennants

After strong moves, the continuation chart patterns known as pennants can occur
as price consolidates before moving on in the direction of the original strong move. A
pennant forms a small triangle that is usually symmetrical (close to), and in strong upward
or downward moves this pennant represents buyers or sellers catching their breath so to
say, before reloading and pushing price even further. Traders will see the consolidation
and usually jump in themselves, causing price to spring out of the pennant.

Bullish Pennants
Bullish pennants form after big upward moves/ almost vertical up-trends and signal
the bulls are about to get at it again after a short pause of consolidation. When they do
enter again, expect price to move convincingly away from the pennant. The big move
before the pennant is often referred to as the flagpole, and we should expect price to move
by this same distance once it breaks out (as shown by the blue arrows in the 1H Dollar
index chart below), making it a good target. It would be safe to put the SL below the start
of the lower trend line that makes up the triangle, which would’ve made a decent 100 pips.

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 Of course, price doesn’t just have to stop when it reaches the height of it’s original
structure. If you catch a pennant at the start of a reversal you could be sat there laughing
to yourself as you watch it pull further and further away.

Here we see another bullish pennant ^, but this time it occurs immediately after the
end of a downtrend. Price comfortably breaks out of the pennant and hits the short term
target (top of the 2nd blue arrow) which offered a good RR. However if we zoom out a bit
and take a look……

Obviously the Presidential election caused the big spike down, but we can see that
the pennant straight after a downtrend signalled a huge reversal that is still going to this
day.
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Bearish Pennants
As you can guess, a bearish pennant is the same as a bullish one except in
reverse. So a bearish pennant will occur after big downward moves/ almost vertical down-
trends, and it signals that the bears are going to get back on board after hibernating
(pause in the move as consolidation). So we still have the flagpole, just this time it will be
going downwards before the symmetrical triangle occurs, and as before we should expect
price to move the same height of the flagpole after breaking the pennant to the downside.

In this example, we actually see a fakeout initially as price breaks to the upside of
the bearish pennant (the opposite to what we are expecting). But then you can see price
comes back inside the pennant and the bodies close inside it, reclaiming the pennant. This
occurs just before a big drop as price breaks out to the downside. The blue arrows used
are the height of the flagpole and are shown from where the breakout occurs, showing
price comfortably hits the initial target. If you look for an area of support near where the
arrow ends, it should give you a better idea of where price is heading.

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 This image shows a zoomed out perspective of the same pennant. Here we can
see I had a key level (1st quarter low) highlighted where there would be a lot of orders
resting due to the significance of the level. A good time to enter this particular trade would
have been after the 2 bodies closed inside the pennant with your stop loss above the
fakeout as for this setup to work we don’t want it going back up there. Never randomly pick
numbers as your targets, you should always have a reason for your original targets.

#PFGTrading

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