Bullish Pennant
Before we discuss the Bullish pennant pattern, it is necessary for us to have a prior understanding of the Bearish pennant pattern.
In this lesson we will discuss the following:
What is a bullish pennant?
When does this develop?
How do we identify it and techniques to make profit from the second big rise in price?
What is a bullish pennant?
This pattern is bullish in nature and indicates that the current uptrend in price may continue.
It is a continuous pattern where a pause is created in the price movement in the mid way through a steady uptrend.
It creates an opportunity for long trading, looking to make profit from a second big price rise.
When does this develop?
When there is steady rise in price and looks like a triangular flag as the price moves sideways, the bullish pennant develops.
This slowly makes lower highs and higher lows.
The uptrend continues with another identical-sized fall in price.How do we identify a bullish pennant?
The chart below is an illustration.
Number 1: Pole of the pattern
Pennant’s pole: There is a steady rise in price before the formation of flag-like pennants, known as pennant pole.
The pole indicates the start or the continuation of the uptrend.
The pole is necessary for the calculation part in placing the profit target for buy trade.
This pattern is hard to spot as the size of the triangular pennant is relatively small compared to the size of the entire uptrend.
We can learn to spot the pattern with practice.
Practice session
Identify the bullish pennants
Exercise 1: Identify the bullish pennant. Show exercise
Exercise 2: Identify the bullish pennant. Show exercise
Trading the bullish pennant
Technique 1:
Trade as soon as the price breaks out of the triangle pattern.”
Enter the trade when the candlestick has closed above the pennant’s upper trend line.
Place your stop loss on the other side of the pennant, just below its lower trend line.
Before the consolidation of the market, measure the initial rise in price.
Place the profit target the same distance above the pennant’s breakout point.
The chart below is an illustration:
Number 1: Pole of the pattern
Number 2: Profit target distance (same height as the pole number 1)
1 Buy order (long entry)
2 Stop loss
3 Take profit
Practice session
Exercise 1: Where would you place the entry, stop loss and take profit? Show exercise
Technique 2:
Wait for the price to rise above the pennant’s upper trend line.”
Enter your trade as soon as the price rises above the pennants upper trend line.
Once resistance breaks, place a buy order after the price retests that trend line.
The broken resistance now becomes support level.
Place your stop loss below the new support area.
Place your profit target
Measure the size of the pennants pole. Place your profit target an equal distance above the pennants breakout. (Entry of our trade)
The chart below is an illustration:
Number 1: Pole of the pattern
Number 2: Area where the resistance line has turned into support
Number 3: Take profit distance (same height as pole number 1)
1 Long entry, after the price has bounced off the trend line
2 Stop loss underneath the new support area
3 Take profit level
Practice session
Exercise 1: Where would you place the entry, stop loss and take profit? Show exercise
Nut Shell
An overview of the lesson discussed so far…
The Bullish pennant develops in a uptrend.
Buying opportunity: This pattern is bullish in nature and indicates that the current uptrend in price may continue. It indicates possible buying opportunities.
When there is steady rise in price and looks like a triangular flag as the price moves sideways, the bullish pennant develops.
Enter the trade after the resistance level has been broken, either on a breakout or on a retest of the pennants upper trend line.
Place your stop loss below the other side of the pennant.
The profit target is placed the same distance above your entry point as the height of the pole.