Using The Bullish And Bearish Pennant Formations
The bull pennant forms following a rapid price advance. Following this advance, the market experiences a short consolidation phase where the highs and lows begin to converge into a symmetrical triangle or “pennant” shape. This is indicative of a temporary suspension of buying pressure by traders to take profit or seek confirmation.
On the other hand, a bearish pennant results after a sudden price fall. Similar to the bullish pennant, it is followed by a short period of consolidation where the price activity is a converging triangle. This pattern indicates a temporary respite from selling pressure before selling activity resumes again.
Advantages Of The Bullish And Bearish Pennant Formations
The pennant patterns reflect the psychology of the markets. Trades will often pause for a time or take profits after a strong move, which leads to the short phase. However, if the fundamental or technical drivers behind the move remain intact, the trend typically continues in the same direction. The breakout from the pennant represents renewed commitment from traders following the direction of the original move. The advantages of this approach are that there will be clear entry and exit points, and the patterns work across multiple timeframes, making them useful for both day traders and long-term traders. They support trend trading, allowing traders to follow the trend, which can lead to more successful setups, and they also have a good risk-to-reward ratio. Due to the tight consolidation preceding the breakout, traders can set close stop-loss levels while targeting larger price moves.
In this course, you will learn all about bullish and bearish pennant formations and their uses. You will learn how to read the charts, spot the price movements, and what causes them to appear. You will find out how to spot false breakouts, which can occur in volatile markets, and how you can use the pennants in conjunction with other indicators such as volume, RSI (Relative Strength Index), or MACD to confirm the breakout’s strength. Volume increasing at the breakout point is often seen as a strong confirmation signal.
In addition, you will learn how traders align with the prevailing trends and enter positions with favorable risk-reward setups. All very helpful tools to have on your side as you tackle the exciting world of Forex marketing.
