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  1. Beginner
    Early Stages for Beginners
    8 Topics
  2. Forex Terminology
    11 Topics
  3. Margin & Leverage
    2 Topics
  4. Personal Psychology Questions
    2 Topics
  5. Psychology for Beginners
    7 Topics
  6. Intermediate
    Identifying Scams
    2 Topics
  7. Brokers for Beginners
    5 Topics
  8. Technical Analysis
    13 Topics
  9. Market Structure
    5 Topics
  10. Completion
    Risk Management for Beginners
    8 Topics
  11. Fundamental Analysis
    9 Topics
  12. Advanced
    Using Indicators
    6 Topics
  13. Technical Analysis (Part 2)
    8 Topics

Pennant Formation Patterns

Pennants form when price consolidates to create small flag-like symmetrical patterns. One can mistake them for symmetrical triangles, only that they are small and take a short time to form. It takes 1 to 3 months for a symmetrical triangle to form, but pennant formation completes in a maximum of two to three weeks. Symmetrical triangles also have clear tops and bottoms. Pennants are complete as long as the highs and lows of candlesticks converge into a pennant shape. 

Find key characteristics of pennant formation below:

  • A flagpole: Just like the party pennants, Forex pennants MUST have a flagpole to support them. These patterns start by forming a flagpole to set them aside from any other patterns that are in the market. Normally this is a solid bullish and bearish rally away from the rest of the candlesticks.
  • Consolidation: Once prices erect a flagpole, the next step is to raise a pennant flag. Price consolidates following the strong rally that happened. We will notice candlesticks getting smaller as new ones form, creating a triangular-shaped ranging zone. This is what we call a pennant.
  • Breakouts: We confirm a pennant formation with a breakout. This is a second breakout that signals a continuation of the rally that created the flagpole.

Before we learn how to trade with pennants, it’s essential to classify them. We defined pennants as trend continuation patterns. There can only be a bullish or bearish trend. That leads us to two types of pennants:

  • Bullish pennants
  • Bearish pennants

Bullish Pennant: forms when price rallies upwards before taking a break, consolidating into a pennant shape. This convergence usually happens between short-term support and resistance lines. Technical traders hunt for this setup when they think prices will continue rising. Bullish pennants are famous for offering an early indication of a strong bullish trend.

Trading bullish pennants is easy. Once you identify this pattern, draw support and resistance lines below and above the longest candlestick of the pennant flag. Next, place a pending order a few pips above the resistance, with a stop loss just below the support line or an alert to notify you to look for an entry. Your trade will be triggered as soon as price breaks out. 

In the illustration below; you will be able to see what a bullish pennant would resemble when looking at a chart. Typically, the same distance the pennant pole is leading up to the formation is the same distance you set your take profit at. 

Bearish Pennant: are simply an inverse of bullish pennants. They start with an inverted flagpole, followed by a pennant-shaped consolidation. Traders look for sell signals when price breaches the support line of the highest candlestick in the pennant.

Take Profit and Stop Loss Rules for Pennants

Place your stop loss around the low of the triangle when placing a buy order and around the high when entering a sell order. Perfect entries for buy orders should be at the high of the triangle, and at the low for sell positions. You can also use the high and low of the longest candlestick within the pennant to determine where to place your entry and stops.

Since no one can predict the market accurately, determining the best take profit level might be hard for some traders. Some traders like to use the length of the flagpole to estimate take profit levels. Others set their take profit levels at the same length as that of the pennant formation pole. Us traders target 80% of the flagpole’s size. This helps us to exit early and avoid situations where price reverses too close to our profit targets.