bear pennant pattern 2

Bear Pennant: Why I Avoid This Unreliable Chart Pattern

After a price trendline has been broken, it’s common for the price to retest from below. This retest acts as a resistance and confirms that the breakout is valid. In the 15-minute GBP/USD chart, a strong bearish movement led to the consolidation of prices, forming a pennant. Subsequently, the price declined rapidly, mirroring the initial height of the flagpole.

How do you tell If a pennant Is bearish or bullish?

Once the breakout is confirmed, initiate a short-sell position. This means you are betting on the price continuing to fall. It’s crucial to act quickly after the breakout to capitalize on the potential downward movement.

• Successful trading relies on having good information about the market for a stock.
• The bear pennant was merely a resting period for this stock before it continued lower.
• As the pattern continues to form, sellers regain momentum and push the price lower again towards the previous low, and potentially beyond.
• Inverted cup and handle speaks the tale of bearish waves in the market.
• David holds a degree in Management Studies with a focus on Finance.

Volume confirmations help validate the pattern’s breakout, enhancing the reliability of the trading signal. We will help to challenge your ideas, skills, and perceptions of the stock market. Every day people join our community and we welcome them with open arms. We are much more than just a place to learn how to trade stocks.

• On the other hand, symmetrical triangles are patterns with two converging trend lines.
• Low volume during the pennant formation can indicate potential problems.
• Open a short-sell position when you see that price break below the support level, post-pennant.
• In either case, understanding the psychological factors behind pennant patterns can provide valuable insights for traders seeking to make informed decisions.

Related Chart Patterns to the Bear Pennant Pattern

A breakdown occurs when prices move lower, and close below the support trend line of the formation. Connecting the peaks and troughs of the consolidation by two converging trend lines, you’ll get a triangle shape on a chart. The breakout often comes with strong selling pressure (volume) after the bears dominate the market sentiment. The formation is complete when the price action breaks below the lower trend line of the pennant. In my experience, this chart pattern is very bearish because the overall market is pessimistic, and traders don’t feel like catching a falling knife.

Pennants and triangles may look similar, but they have distinct characteristics. Pennants are short-term patterns that usually form over days to weeks, while triangles can develop over weeks to months. In a triangle pattern, the highs and lows don’t have to converge as tightly as they do in a pennant.

Like pennants, flags are typically seen as a continuation pattern, and the breakout direction is expected to align with the existing trend. Fibonacci retracement levels are used for verifying that the pennant’s consolidation does not retrace more than 50% of the initial flagpole drop. This helps maintain the pattern’s validity and signals a continuation of the bearish trend. Together, these indicators provide a solid foundation for confirming entry points and enhancing the accuracy of trades based on the bear pennant. Both bull and bear pennants serve as continuation patterns but in opposite directions.

Note that the bull pennant pattern forms during an uptrend, not a downtrend. This article will teach you to recognize and trade currency pairs using the bear pennant chart pattern. Validating the breakout from a bear pennant often depends on an accompanying volume increase, which can be hard bear pennant pattern to confirm in less transparent markets.

What Are Common Mistakes Traders Make When Trading a Pennant Pattern?

For example, if the flagpole represents a 150-pip move, that distance may be used as an estimated target. Previous support or resistance levels can also be considered as potential exit points. Some traders manage risk by setting a stop-loss below the pennant’s recent swing low (in bullish scenarios) or above the recent swing high (in bearish scenarios).