Bull Pennant vs Bear Pennant Chart Patterns and How to Trade Them

The most common Fibonacci ratios used are 38.2%, 50%, and 61.8%. These levels may act as potential entry or exit points during the consolidation phase of the bear pennant pattern. For example, if the price retraces to the 50% level, traders might consider it as an opportunity to enter a short position, anticipating the continuation of the downtrend. In summary, while both bear pennant and bullish pennant patterns feature a flagpole and a triangle-shaped pennant, they signal opposite market trends. A bear pennant suggests a continuation of a bear market, while a bullish pennant indicates a continuation of a bull market.

In the case of the bear flag, the best way to do that is via volume. Ideally, the initial drop in price should happen on strong volume, while the flag or the consolidation period should be formed with lower or even declining volume. The phase of consolidation in price ends when the sellers ensure the breakout. It should take place since the lower and upper trend lines converge. This is different from the bear flag since the consolidation phase lasts longer, and the two trend lines are parallel. The Bear Pennant pattern differs from the Bear Flag pattern in terms of shape and duration.

Tips for Trading bearish Pennant Patterns

The volume at each period of the pennant is also important. The initial move must be met with large volume while the pennant should have weakening volume, followed by a large increase in volume during the breakout. When analyzing bear pennant patterns, it’s essential to look at various time frames to gain a comprehensive understanding of the market dynamics. In this section, we will explore examples of bear pennant patterns in different time frames, focusing on the NZD/USD currency pair. Spotting bearish and bullish pennants can be tricky at first because the consolidation is often small when compared to the preceding price move.

  • For a deep dive into how volume plays a role in the expanding wedge pattern, check out this resource.
  • Depending on the direction of the movement, Pennant patterns are usually described as being bearish or bullish.
  • However, symmetrical triangle patterns can fly in either direction.
  • They are considered reliable because they often indicate significant changes in the trend direction of the security being studied.
  • Additionally, if one of the bears has changed significantly since they first got together, it can lead to incompatibilities that can’t be overcome, resulting in a breakup.
  • In certain situations, resistance changes into support, while the previous support changes into resistance.

The pattern consists of a significant downward price movement, known as the flagpole, followed by a small consolidative symmetrical triangle called the pennant. Traders should look for a bearish trend with a sharp drop in price to identify the flagpole. Then, they should observe a period of consolidation where the price forms the pennant.

What are the benefits of trading bearish pennants?

This usually offers an acceptable level of protection for traders. Traders should look to enter the trade on confirmation of the breakout after a sudden, sharp move in price. The pennant, after a sharp move in price, indicates that there is likely to be a breakout and continuation in the direction of the initial move. Bear flag patterns printed during clear downtrends have a success rate of around 67%. Bear flags where the consolidation period reaches more than 50% of the flagpole’s length should be avoided at all costs. When it comes to weaknesses, they are the same as with the flags.

What are the risks of trading a bear pennant?

When this happens, you can enter a short position with a stop loss above the most recent high (or the high of the triangle). In addition, you should use other technical indicators and oscillators, such as Moving Averages and RSI, to confirm the breakout. Yes, we work hard every day to teach day trading, swing trading, options futures, scalping, and all that fun trading stuff. But we also like to teach you what’s beneath the Foundation of the stock market.

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By looking at other signs and indicators alongside a bear pennant pattern, traders can improve their chances of identifying bullish or bearish price action in the market. Bearish Pennants are simply the opposite of the Bullish Pennant. Bearish Pennants are continuation patterns that occur in strong downtrends.

A commonly utilized rule is to use no more than 1% to 2% of your account worth on any given trade. This ensures that the odd loss bear pennant pattern or even losing streak doesn’t diminish your account too much. Indicators like RSI, MACD, or moving averages can be your allies.

Is a pennant pattern different than a flag?

So if you want to tell whether a pennant is bullish or bearish, you just need to pay attention to the direction of the prevailing trend. When this happens, there is a high probability that the prevailing downtrend will continue as the support level has been broken. Here are a few frequently asked questions regarding bear pennant and forex trading.

Pennants represent continuation chart patterns, and you can spot a point of breakout after a consolidation period. On the other hand, symmetrical triangles are patterns with two converging trend lines. Switching to an even shorter 1-hour time frame, the bear pennant pattern might become less pronounced but can still be identified.

Place the stop loss above the upper trend line of the pennant. The bearish pennant pattern suggests that downward pressure is on the market. To enter the market, place a sell market or sell stop-limit/market order beneath the pennant’s lower trend line. A bearish pennant is not reliable or accurate, with a 54% success rate on a downside breakout achieving an average 6% profit in bull markets. The first is to simply wait until the market crosses above its trend line, which serves as a line of support for bearish pennants and a point of resistance for bullish ones.

TrendSpider Chart Pattern Scanning

This information is made available for informational purposes only. It is not a solicitation or a recommendation to trade derivatives contracts or securities and should not be construed or interpreted as financial advice. DailyFX Limited is not responsible for any trading decisions taken by persons not intended to view this material. Both of these variations represent continuation patterns – signals that the thus-prevailing trend will continue. Typically, volume spikes during the formation of the initial flagpole.

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