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Pennant Chart Pattern: What Is It & How to Use It For Crypto Trading? Trading Heights on Binance Square

Among the many chart patterns in existence, pennants tend to be a lot more accurate than most. Furthermore, this accuracy can be raised with the help of other confirmation indicators. A bearish flag is characterized by a sharp drop in price followed a period of gradual price congestion moving higher within a channel. On break out of the bearish flag, price then travels a minimum distance of the flag post. We notice how the price moved rapidly before entering a period of gradual exhaustion, shown by the number of candles within the flag.

Frequently, traders will use pennants along with other forms of technical analysis to assist their decision-making process and improve their chances of success. For example, low volume during the pennant formation can be a red flag. This is because this means weak market participation and a higher likelihood of the pattern failing to produce the anticipated price movement.

Bull Pennant Pattern Example

The bull pennant is a continuation pattern and the uptrend is not over. The bull pennant chart pattern signals a continuation of an uptrend as it begins with a sharp price increase that causes an asset’s value to rise further. This initial upward move results from a positive news release or other news positively impacting the asset. The Dow Jones chart above shows an example of the bull pennant strategy, where the price breaks above the upper boundary of the pennant pattern, leading to a potential rally. This strategy involves executing a trade during the retest after the breakout period with precise entry and exit levels. The Quasimodo pattern is a reversal structure used by price action traders across all markets and timeframes.

Can Pennant Formations Signal Both Continuation and Reversal Patterns?

Gaps patterns refer to price gaps that occur on price charts when the opening or closing price differs significantly from the previous day’s close. Gap pattern’s structure is characterized by empty space on the price chart between the open or close, representing a sharp movement in price without trades occurring in the interim price range. The anticipated outcome after a complete cup and handle pattern is a breakout above the prior peak. The psychology is that after a steep drop, short sellers take profits driving a normal pullback and consolidation.

The diamond bottom pattern is a chart formation that indicates a potential trend reversal from a downtrend to an uptrend. The diamond bottom pattern forms when a security’s price hits a low point, then rallies briefly, declines to another how to trade bearish and bullish pennants low, and then rallies again past the previous high.See the image below. This creates the diamond shape on the chart as the price forms lower lows and lower highs into the bottom reversal point.

The price range between the neckline and the top is known as the depth of the base. This price range is eventually considered as a potential target price of the downside move when the price finally breaks below the neckline. Confluences like a proper retest and bearish candlestick patterns are observed for strengthening a trade setup for the short side. In the example above, observe how higher highs are forming since the beginning of the consolidation. The price managed to take support from the support below, which was followed by a series of higher highs indicating the possibility of a breakout of the rectangle on the upper side. The psychology behind this pattern is that after a sharp advance up, traders take profits, which causes a normal pullback and consolidation.

Rectangle Chart Pattern

The formation of pennant patterns in price charts reflective the ebb and flow of investor sentiment and the tug-of-war between bulls and bears. Pennants are typically seen as a manifestation of a temporary pause or consolidation in the market, and the psychological dynamics during this phase contribute to the pattern’s formation. Pennants, which are similar to flags in terms of structure, have converging trend lines during their consolidation period and last from one to three weeks.

The three drives pattern refers to a price chart that shows three successive drives or impulses in the same direction, with each impulse typically being contained within the range of the preceding one. The Elliott Wave Pattern is a technical analysis technique that identifies repeating price cycles or waves within an overall market trend. Harmonic patterns reflect the cyclic behaviors and emotions in the market as prices fluctuate from extremes back to a mean or equilibrium. These patterns emerge as traders respond to shifts in supply/demand dynamics through predictable rhythms of optimism and pessimism. The Fibonacci ratios help quantify this mass psychology into defined price structures.

Such pauses may lay the groundwork for the continuation of the trend post-breakouts. The assumption that the trend will resume shapes the underlying bias of Flag and Pennant patterns, and hence the previous trend will play an important role in identifying the directions of patterns. The pennant portion of the bullish pennant chart pattern is a primary element in this formation.

1. If you are not familiar with the Ichimoku cloud, the chart is going to look really busy.
2. If the consolidation phase does not start from a downtrend, it is not considered a bearish pennant.
3. Price eventually manages to break lower out of the pennant pattern eventually retesting the break out before dropping to reach the price objective.
4. The bullish pennant, just like the bullish flag, comes with two phases which are a strong uptrend and consolidation.
5. Unlike the bull pennant, which indicates a continuation, falling wedges often signal a bullish reversal.

Chart patterns should be used in conjunction with other analysis techniques such as volume, momentum indicators, and fundamentals for improved reliability. The scallop pattern is considered a continuation pattern that signals the persistence of the overall bullish trend. After a scallop consolidates, the expectation is for the uptrend to resume again with the price moving to new highs. For traders, the entry point would be after the higher low is confirmed, with a stop loss placed below that low. One would aim to stay in the trade as long as the reversal holds, with trailing stop loss used to lock in profits as the new uptrend forms. Exits would be when the price hits target levels or if the stop loss is hit invalidating the pattern.

1. The orderly, step-like rises reveal sustained positive sentiment rather than unsustainable Vertical spikes.
2. It’s important not to confuse bullish pennants with other patterns such as triangles, falling wedges and bullish flags.
3. After many years in the financial markets, he now prefers to share his knowledge with future traders and explain this excellent business to them.
4. The range of this candlestick setup is taken as the minimal take profit range.
5. Instead, a temporary pause allows traders and investors to reassess the asset’s value.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how this product works, and whether you can afford to take the high risk of losing your money. Discover the range of markets and learn how they work – with IG Academy’s online course. According to risk management rules, a stop loss is set a little lower than the crossing of the pattern lined. A stop loss, in this case, should be set a little higher than the converging lines of the pattern.