The Bunting pattern, known as a Pennant, is often shaped like a triangle or wedge. Although, commonly used in technical analysis to predict future market direction. However, many traders still do not understand the characteristics and how to trade effectively with the pennant pattern. Please read the article below with Forex Trading to learn more about this model!
Definition of bunting pattern
The bunting pattern (Pennant) is a trend continuation pattern. The pattern is formed by the convergence of two close trend lines. They are shaped like a small symmetrical triangle, created from many candles.
This structure often appears after a market experiences a sharp move up or down. This is followed by a short accumulation period before the trend continues in the original direction. This type is often used to forecast price trends in Forex analysis.
The flag pattern is often similar in shape to the wedge pattern but with an additional flagpole. This shows that after the market pauses to accumulate bullish or bearish momentum, the price can break out through either edge of the pattern to continue moving in the previous direction.
See more: Analyze & forecast trend effective candlestick pattern
Distinguishing different types of bunting patterns
Depending on the direction of the market movement, pennant patterns are classified into two types: bearish patterns and bullish patterns.
Recognize the bullish pennant pattern
The Bullish Pennant pattern often appears during cycles of an uptrend and forms when the trend is still strong. An important point is that the price has gone through a period of strong increases before.
This pattern is usually just a correction phase in an uptrend, representing a pause for buyers:
- Price increases from a flagpole, while flags represent corrections.
- The flag is usually formed by two trendlines: a downward-sloping resistance line and an upward-sloping support line, approaching to intersect at a point.
Market:
When the pattern is bullish, sellers often dominate the market, while buyers are quietly accumulating, leading to prices converging at one point. Ultimately, the strength of the bulls in the flag drove increased trading volume, and the price broke out through the upper part of the pattern, continuing to move strongly upward. This development creates an opportunity for traders to buy to take advantage of the next uptrend.
Recognize bearish pennant patterns
In the flag pattern, the Bearish Pennant pattern is formed after a period of strong downtrend, with the following characteristics:
- The flag represents the period of increased adjustment. This is the time when sellers take a break after a period of continuous decline.
- The previous strong downtrend is seen as a flagpole. While the adjustment gain part is the flag part.
- The amplitude of fluctuations in the flag gradually decreases and the two trendlines will converge to one point.
The market goes as follows:
The appearance of the pennant bearish pattern. It shows the tension between buyers and sellers. When sellers are trying to issue sell orders while buyers pause to accumulate. During this period, the strength of both sides was not great enough. This leads to a gradual decrease in trading volume from both sides, and the two trendlines will be closer to each other.
Finally, when the bears try to place a sell order to break out through the lower part of the pattern. This is also a sign that this period is about to end. The price will move in a downtrend, sellers will start to sell. Supply will increase rapidly. Traders can enter a Sell order to profit from the subsequent downtrend.
The difference between the pennant pattern and the isosceles triangle pattern
A pennant must start with a strong decrease or increase, similar to a flagpole. If there is no strong downward momentum, the pattern is not a pennant but an isosceles triangle pattern.
The main difference between pennants and triangles needs to be recognized for effective trading. Specifically:
- Pennants typically have a shallower retracement (usually less than 38% of the flagpole). While a deeper retracement is usually indicative of a triangle, not a pennant.
- Pennant patterns often signal the continuation of an up or downtrend.
- The time to complete the pennant pattern is usually about 1-3 weeks. That shows it is shorter than the triangle pattern.
During this period, trading volume is often very large during the initial decline, then decreases and fluctuates little. When the price breaks out of the pattern, trading volume usually increases again, pushing the price to move in the previous trend.
Instructions for trading the pennant pattern
Discover the guide to trading in the flag pattern. How to trade in each point, let’s join Forex Trading in the following section.
Place an order at the moment the price breaks out of the bunting pattern
In forex trading, placing orders on a price pattern is often a familiar part for traders. Generally applicable to most popular models. Some patterns require an additional approach, for example, waiting for the price to break out of the pattern and reconfirm the trend line.
However, with the pennant pattern, there is usually only one standard way to place an order, which is to place the order as soon as the price exits the pattern.
Stop loss and take profit orders in the pennant pattern
If you have learned about what is a head and shoulders pattern, you know that in trading the Pennant pattern. It is important to use stop loss and take profit to effectively profit.
For the bullish Pennant pattern, we should place a buy order just above the pattern. Then place a stop loss below the bottom of the pattern. With a distance of a few pips from the low of the flag section. This helps protect positions against adverse movements and keeps risks at a safe level.
Meanwhile, for the Pennant model, the price is reduced. We should place sell orders at the bottom of the pattern. Then, place a stop loss a few pips above the flag. This helps minimize the risk of price fluctuations.
In terms of taking profit, profit taking should be done at one point. It should be placed so that the distance from that location to the entry point is at least equal to the height of the flagpole. Note that profits need to be guaranteed at a safe level. You consider making sure you don’t miss the best profit opportunity.
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Be careful when trading with the pennant pattern
Bunting will be more effective when the trendline of the flag moves. Opposite to the trendline of the flagpole. This means that the support and resistance lines for the bull flag pattern will be tilted slightly downwards. Meanwhile, for bearish pennants, the support and resistance levels will be slightly upward.
The design of the flag pattern usually takes shape within about three weeks. If it lasts longer than 3 weeks, it will be considered a triangle pattern.
Summary
This article shares information about the bunting pattern and how to effectively trade with the pattern. This is to support traders. Please visit Forex Trading to update many good knowledge about the Forex field.
FAQ
How to distinguish bunting and wedge flags?
In the bunting pattern, the flag resembles a wedge. The difference is that there are two converging trendlines: one sloping down and one sloping up. On the contrary, in a wedge, the two trendlines will slope both up or down.
In the Pennant model, are the two trendlines in the same direction or opposite directions?
The two trendlines in the flag pattern will have opposite trends. The downhill line and the uphill line share the same point.
When does a bunting pattern usually appear?
Flag patterns often appear during market periods. To prepare for important events such as interest rate fluctuations and non-farm data.
