Hello and welcome to to another edition of the bulls vs the bears. Last time around we touched on How to Trade and Cash in on Wedge Chart Patterns. This week we are going to learn how to trade and laugh all the way to the bank with bearish and bullish pennants. Basically we are going to learn how to trade bearish and bullish pennants. Now pennants are cousins of rectangle chart patterns in that they are continuation chart patterns formed after humongous moves.
Whether the move is upward or downward, buyers pause to catch their breath after a period of atritional warfare. During that period either side decides which direction to drive the currency pair to next. Consequently price consolidates and forms this cute little triangle called a pennant. While price continues to consolidate, more buyers or sellers to jump on the bandwagon of the prevailing trend, forcing price to break out of the pennant formation.
Now let’s look at the first pennant, which is:
a bearish pennant forms when the downtrend is steep and almost vertical. This suggests a sharp drop in price, and when that happens some sellers close their selling positions. While other sellers decide to jump on the pennant band wagon, causing price to consolidate. Let’s a look at an illustration of the price action with the bears.
Here is the bearish pennant in its pump. See how price breaks below the bottom of the pennant. Once enough sellers jump on the downtrend’s bandwagon, price breaks out of the bottom of the pennant like a runaway train. Unfortunately that causes price to consolidate briefly. Now let’s see what happens after the brief breather by the bears.
Once the bears finish breathing, they continue their downward journey by breaking through the bottom of the pennant.
Now I can hear someone asking this question”How do I trade this bearish pennant”? Well first put in a sell order at the bottom of the pennant and a stop loss above the pennant. In so doing, you head for the exits in case you get faked out by the. You use the height of the earlier move to estimate the size of the breakout move.
Last but not least is :
Bullish pennants suggests the bulls are taking over the show. And just like its bearish brethren, Price shoots up after a brief period of consolidation by the bulls. This after they decide to take a breather to decide their next choice of action.
Now let’s check the price action in the bullish penant.
Here you see price,led by the bulls climbing sharply before taking a breather through consolidation. Now let’s see the bulls revving their engines for another surge.
Bingo! The bulls surge further up after the initial breakout. Now to cash in on this pennant, we place our buy order above the pennant and place our stop loss below the pennant. Like I said, measure the size of the breakout by the height of the previous breakout. Pennants may be small, but they pack a huge breakout punch.
That’s a wrap for “How to Trade and Laugh All the Way to The Bank With Bearish and Bullish Pennants.” Bearish and bullish pennants are similar to rectangle patterns in that they are continuation patterns formed after humongous surges. The bearish pennant is formed after a steep downward drop. This forces some sellers to sell their trading positions while other sellers jump on the bandwagon, forcing price to go into consolidation. During this period, sellers take a breather to decide which direction tom send price to.
The same situation takes place with the bullish pennant. The bullish pennant forms when a huge bullish surge occurs after a brief period of consolidation. By then the bulls would have decided where to drive price- which is obviously up.
This brings us to the end of our series on chart patterns. I hope you learnt a few things these past few weeks. Hopefully you can implement them when you trade.
Til next time take care
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