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The bullish pennant is a bull continuing pattern that signals a prolongation of the upward trend towards the end of the consolidation period.
Unlike the flag, where the price action is consolidated in two parallel lines, the pennant uses two converging lines to consolidate until an outbreak occurs.
Selling pennants is very similar to the process of selling flags. This blog post will see what a bull’s pennant is, its structure, strengths, and weaknesses.
What does the bullish pennant show us?
The bull pennant is very similar to the bull flag. Both consist of two phases: a robust upward trend and consolidation. However, in the case of the flag, the later phase has the shape of a wedge or a triangle, unlike the flag, where we have a canal.
The consolidation phase should be based on a continuous standard triangle. Therefore, the higher movement is classified as a flagpole.
After reaching a short-term peak, the price action will consolidate below the highest. The two corresponding lines connect the upper, lower, and lower upper until the two intersect.
In this case, an outbreak should occur, unlike the light bulb flag, where consolidation in two parallel lines may take longer.
The psychology behind the pattern of the bull pennant
The Bullish Pennant pattern occurs because prices rarely rise in a straight line for a long time. During the sharp movement of prices, prices often take short breaks to “catch their breath” before continuing their movement.
During Stage 1 of the Bullish Pennant (Flagpole section), positive market reactions to some favourable events (e.g., positive earnings surprises, upward guidance, new product launches, etc.) were caught by euphoria were willing to buy at higher prices.
As prices rise, some early buyers who have bought shares at a lower level will start selling to get us. At this point, the 2nd phase of the Bullish Pennant model begins.
Initially, most of the shares sold by buyers for the first time were quickly picked up because market news and sentiment were still very positive. Over time, however, purchasing pressure will slow, and prices will begin to consolidate in order.
After a few hours, a new positive development emerged. As a result, the price increased, breaking the pennant’s long downward line with increasing volume as new buyers now beat earners.
How can you create a pennant pattern?
The pennant pattern is a sequel pattern. If this pattern appears, you can expect the price to continue the previous trend. This is because the pennant was created when prices temporarily consolidated.
Entrepreneurs may already know that trend is your friend. In this regard, pennant designs are the most popular card designs for sale. However, you can also hit a club with a pennant pattern and other technical instructions to sell you a high chance of creating a flag pattern diagram.
The pennant pattern can be identified based on solid price action. This price action is always sharp and fast and moves in the direction of the trend. After this sharp move, prices are likely to show a slight consolidation.
This consolidation takes the form of a pennant pattern. Once the pattern is created, the price is likely to come from this combination. In most cases, this breakthrough will always occur in the direction of the previous trend.
The three main elements of the bullish pennant pattern
- Flagpole – the price of the asset should sell higher in a series of higher highs and higher lows;
- Pennant- the consolidation phase occurs between two converging lines;
- Breakout – breaking a long trend line displaces the pattern, while breaking a supporting line eliminates formation.
Because no market movement can take place in a direct vertical manner, the dominant party must play a tactical game and take a break between aggressive movements. Buyers, therefore, want to consolidate their recent profits and allow for a slight correction to the bottom.
After a temporary halt, the price is likely to explode explosively. Like the bull flag, the consolidation period should not exceed 50% of the Fibonacci retracement of the first branch above (flagpoles).
Pullback, which reaches below 50%, indicates that the upward trend is not as strong as it should be. Thus, the strong bull pendulum corrected almost 38.2% before breaking the long trend line.
Strengths and weaknesses of a bullish pennant
The bull pennant is more of a continuation pattern because it helps keep the current uptrend higher. Pennant traders are helping to identify the stage at which the trend is now. Therefore, it is easier to sell the flag because two accompanying lines and a flagpole define the trade levels precisely.
The formation, which examined all three boxes (flagpole, flag, and breakthrough) with a correction that ended at approximately 38.2%, is a textbook model of a bull flag. The shorter and softer the correction, the stronger the upward trend, and the final breakthrough is average.
Pennants have the same weakness as flags because a long period of consolidation can lead to a change in design. For this reason, it is essential not to enter the trade until the outbreak and always consult other technical indicators to confirm the outbreak.
How to sell a bull pennant chart pattern? Steps guide for beginners
Step 1: Identify the pattern
The most important part of the pattern is identifying a definite trend (in both directions, as the flag can be reversed, causing bearish movement!)
When you see the pennant, look for longer time frames to ensure the pattern is valued, not only to widen. He may run into a massive area of resistance!
Step 2: Buy a Breakout on the highest trend line
The price channel in the symptom phase of this model is a period of consolidation. This is where savvy day traders, such as banks, are likely to record profits and close trades for the next big step.
Consider buying an escape on this pennant as it goes towards the mast and a candle close by. If it breaks in the opposite direction, this is not the case in the pattern!
In the bear pennant chart, the price will fall apart at the bottom of the channel, where you can open a short position.
Step 3: Close the position
No trade should be concluded without knowing the conditions for its termination, whether for or against the trade.
The stop loss is always placed on breaking the pennant price channel. If traders wait for the candle to close before entering the store, there is a slightly higher chance that the market will continue to favour them.
The profit collection level must be set to a price above the breaking point, equal to the length of the previous flagpole.
For example, if security raises $ 10 on a pole, you are heading $ 10 above the breaking point. This is the strength of the chart pattern: it has a high chance of making a similar move with the primary trend.
However, there are no hard and fast rules! Many small assets explode upwards quickly, and the chart can only create a double top of the previous mast. Traders need to look at the history of the local asset trade to set a price target for the trade.
The Fibonacci pattern may help target the higher returns of most assets. At the same time, a logarithmic graph may be helpful for the rapid growth of small assets such as cryptocurrencies or penny stocks.
Key points to consider when trading with a bullish pennant pattern
1. Keep the context in mind
Patterns are most easily identified retrospectively because you can quickly see confirmation of a future design, unlike live trading.
While pennant chart designs are reliable technical indicators, the simplest mistake that can be made is to think that the mast is part of a significant development without looking back.
For example, a day trader may see a significant upward movement on a 5-minute chart, followed by several candles after that move. What they don’t see, however, is that the price is selling aside on the 30-minute chart, which limits potential growth.
2. Waiting for confirmation
Predicting the bottom of the price channel can be tempting, and time the last bottom for the next impulsive jump.
However, the market may continue one or more sections of the flag price channel. That’s why traders wait for the flag pattern to break out instead of jumping into it and trading based on hope.
3. Remember that patterns do not always work.
Even if the price channel is broken correctly, this can cause the price to fall and the immediate downward trend to continue.
No matter how reliable the historical formula is, no strategy offers 100% confidence, and the markets will eventually break every rule at some point.
This is mainly why most successful traders do not rely on a technical model or indicator but on meeting them. Many arguments in your favour support the business, which increases the chances of success!
The time frame for a bullish pennant pattern
Therefore, the pattern is classified as a short-term pattern, which usually occurs for days or weeks. However, it is common for merchants to sell flag designs that appear over extended time frames.
The difference between the flag pattern and the pennant
The flag and the pennant pattern are almost identical in introducing the price action. Both are continuous patterns that occur within a trend. Sometimes traders confuse the flag pattern with the pennant pattern due to its similarity.
The consolidation patterns are the same if you look at the flag as a pennant pattern. These patterns occur when the trend is temporarily halted when consolidation occurs. So there are no significant differences between the two.
The flag and pennant patterns follow the same rules for the sale price action. The only difference is the form of association.
A flag pattern is formed when prices are formed within a channel, thus creating a flag image. The pennant pattern on the other side looks like a small triangle. This is the only difference between the flag and the pennant pattern.
The trading rules remain the same if the flag and pennant are sold based on the length of the flag personnel planned up or down since the flag or pennant design was broken.
These two patterns occur in different time frames and can occur in different markets, and can be seen in the price charts. So if you see a flag pattern or a pennant pattern, the logic and trading rules remain the same.
Frequently asked questions (FAQs)
1. What does the bull pennant mean?
The bull pennant is a technical trading formula that indicates the future continuation of solid price growth. They arise when the market makes a wide move higher, then stops and consolidates between reaching the lines of support and resistance.
2. Is the bull pennant good?
The bull pennant is a bull continuing pattern that signals a prolongation of the upward trend towards the end of the consolidation period. Unlike the flag, where the price action is consolidated in two parallel lines, the pennant uses two converging lines to consolidate until an outbreak occurs.
3. How reliable is a bull pennant?
The pennant pattern is often seen in books next to the bull and bear pennant pattern, but rarely does anyone talk about its low success rate. While the pennant itself is not a unique pattern below 70% success, the flags are very low.
4. How long will the bull pennant last?
The second difference between a symmetrical triangle and a pennant is its length. The pennant is considered a short-term pattern created over days or possibly weeks. This pattern lasts one to four weeks.
The bull pennant pattern is expected in the price action of all securities and can help any trader who fails in the first step and allow him to take advantage of his more significant trend. In addition, waiting for the end of the symptom trend creates a higher risk-reward ratio and a better chance of profit.
As profitable traders know, every indicator and strategy is about increasing the chances of winning so that the trade can become a reliable source of income over time!
Jason Morgan is an experienced forex analyst and writer with a deep understanding of the financial markets. With over 13+ years of industry experience, he has honed his skills in analyzing and forecasting currency movements, providing valuable insights to traders and investors.
Forex Content Writer | Market Analyst