pattern bunting(Pennant) is one of the popular continuation price patterns. This pattern predicts the continuation of a strong initial trend. Although the Pennant appears frequently, it is often confused with other price patterns. Therefore, in this article, Forex Trading will provide detailed instructions on how to identify and trade with pennant patterns.
Information you need to know about pattern bunting
pattern bunting (Pennant) is shaped like a triangle. This leads to confusion between the Pennant pattern wedge pattern and triangle patterns for many new traders who do not have much experience in Forex chart analysis. To distinguish the Pennant model from other models, it is necessary to clearly understand the following characteristics:
- Pennant is a pattern that appears at the end of a strong uptrend or downtrend.
- After a period of strong increase or decrease, the market often pauses to “gain momentum” before continuing to move in the original trend. During this time, prices often fluctuate in a small amplitude and gradually narrow. It forms a complete triangle pattern on the right side.
- However, the Pennant pattern is only confirmed when the price has broken out of a resistance or support area.
- Pennants provide forecasting signals for the continuation of price trends.
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Pennant patterns in Forex
The pennant pattern is similar to other forex continuation price patterns. It can be easily divided and recognized. There are actually two main variations of bunting. Below are the characteristics to identify each type of model:
pattern bunting bullish
This Bullish Pennant pattern is a signal that the price will continue its initial upward trend. The important characteristic of the Bullish Pennant pattern is that the price has experienced a strong uptrend before. And the complete flagpole was formed.
The bullish pennant pattern usually has a structure consisting of a downward-sloping resistance line and an upward-sloping support line. They converge to form a triangle. The price range is limited inside the triangle until the price has enough momentum to break the resistance line. After the accumulation phase, when buyers have stored up enough energy, the price will increase sharply as the market continues to go up.
Pennant bearish pattern
The bearish pennant pattern, also known as the Bearish Pennant, is a continuation pattern. It forms after a strong downtrend. This pattern is formed by the intersection of resistance and support lines, forming a triangle. After a period of sharp decline, many sellers will take profits step by step. While some other sellers joined the downtrend, leading to a price pause.
Therefore, during the triangle formation phase, the price moves slowly. When the selling force becomes strong, the price will break the support line and continue to fall sharply. This is also a signal that sellers are starting to sell and the number on the market will increase rapidly.
Characteristics of identifying model bunting
To recognize the pattern bunting and distinguish it from other quote patterns, it is necessary to note the following number of characteristics:
- Before this pattern is present, the market needs to experience a strong trend. The part of this trend, where prices rise or fall sharply, is called the flagpole or flagpole. So, if a pattern does not have this flagstaff. That is, it will just be a triangle pattern instead of a pennant.
- The two resistance and support trendlines converge to form the flag.
- The volume of the trade will be very large during the initial trend. After that, it will decrease and fluctuate very little. When the price breaks out and breaks out of the pattern, trading volume will continue to increase again. This pushes the price to move according to the previous trend.
- The time for Pennant to complete will range from 1-3 weeks. It is enough for traders to analyze charts and prepare their trading strategies.
Details on how to trade with the pennant pattern
To achieve profits when trading with this model, investors need to be acumen. From there, detect this pattern early and choose the appropriate trading method.
Step 1: Enter an order immediately after the price breaks out of the pattern
This is a popular entry point and is used for most price models in the foreign exchange market. Some models have an additional way to enter orders by waiting until the price breaks the model. Then ,will return to retest the trend line. However, with the pattern bunting, we will enter an order as soon as the price breaks out of the pattern.
Step 2: Place stop loss and take profit orders
- Stop loss: If this flag pattern is bullish, the price will usually continue to increase sharply after the breakout. The advice is to place a buy order right above the pennant. Place a stop loss below the bottom at a certain distance from the lowest price of the flag section. If the pennant pattern is bearish, place a sell order at the bottom and place a stop loss above with a certain distance from the highest peak.
- Take profit point: To set the take profit point, there is a simple method. You can take profit at the point where the distance from that position to the entry point is at least equal to the height of the flagpole. Note that the take profit point will be on the same side as the entry point.
See more: Optimize trading with IC Markets Exchange
What should you keep in mind when trading with this forex model?
The pennant price pattern is an important technical analysis tool. It is used in trading to identify potential trends and trading opportunities.
Look for a clear trend
This forex pattern often forms after a strong price movement. Therefore, it is necessary to look for a clear trend before identifying the pattern. Trends should be identified by observing higher highs and higher lows in an uptrend, or lower highs and lower lows in a downtrend.
Identify pattern bunting
The pennant pattern resembles a triangle on the price chart. Where the price consolidates after a strong move, this consolidation phase is often characterized by a reduced trading volume and smaller price movements.
Confirmed breakthrough
After identifying the pennant pattern, traders should wait until a breakout occurs before entering the trade. A breakout occurs when the price moves beyond the boundaries of the pattern. It is often accompanied by increased trading volume and volatility.
Set a stop-loss order when trading with the pennant pattern
It is important to set a stop loss when trading the pennant pattern. As it can occur false breaks. Stop Loss orders can help limit potential losses in case a trade goes against your wishes.
Besides, you can also learn more about another flag model, the pennant model – engulfing bullish. From there, choose suitable transactions or combine them together.
Epilogue
Forex Trading hopes that the above-dedicated sharing has helped you clearly understand the identification characteristics and how to trade with pattern bunting. To become a smart investor, always continue to learn knowledge and experience from those who have gone before you. Never ignore the stop loss and take profit rules in every trade.
Frequently asked questions
What is pattern bunting?
Pattern bunting is also known as Pennant. This is a price pattern that appears after a strong trend. After a strong up/down trend, the market often has a pause period to “take a breath” before continuing with the old trend.
What does volume look like in a pennant pattern?
The trading volume during each phase of the pennant is also important. The initial phase of the model requires a large trading volume. While the pennant phase usually has a low volume. Conversely, when the price breaks out of the pattern, trading volume increases significantly.
What is the stop loss of the pennant pattern?
On a bullish pattern, the stop loss is usually placed just below the support line. On a bearish pennant pattern, the stop loss is usually placed just above the resistance line.
