Pennant Chart Patterns

Pennants may allow you to show your colors in rooting for your favorite sports team, but they are used by technical analysts to predict future currency values. Pennants are a very basic chart pattern.

Pennants can be both bearish and bullish. A common chart pattern, you should be sure to be able to spot a pennant as it forms on a forex chart.

Bullish Pennants

A bullish pennant is marked by a brief consolidation in the shape of a pennant during an uptrend. The following chart showcases a bullish pennant:

As you can see, the price was bullish, rising quickly into a pennant formation. At the end of the pennant, the price broke out of the pennant and to the upside. We can draw two lines above and below the consolidation period in the shape of a pennant.

After breaking out of the pennant formation, traders should expect a move to the upside equal in size to the move leading up to the pennant formation:

Bearish Pennants

A bearish pennant is much like a bullish pennant. In a bearish pennant, though, the pennant forms after a strong bearish move.

Once into the pennant, the price moves sideways for some time before bearish traders overtake the bulls and the price breaks downward:

Just like a bullish pennant, traders should expect that the move following a breakout in a bearish pennant will be equal in size to the move preceding the pennant’s formation:

Always keep on the lookout for pennants, bullish or bearish, to find high accuracy trading signals. While they do require some patience to play—you have to wait for the price to break through the pennant near the tip of the chart pattern—they are an excellent way to make high probability forex trades.

Bullish and Bearish Flags

A cousin of the pennant, a flag chart pattern operates much like a pennant except the pattern is more rectangular than that of a pennant. The trend lines that make up the limits of a flag do not converge, and should be almost parallel, much like a channel.

Flags for Bulls and Bears

Below are two flags; one flag is bearish, while the other is bullish:

In a flag formation, the price trends in a modest reversal, often touching both top and bottom trend lines before breaking out in the same direction of the larger move that preceeded the flag. In a bearish flag, the movement before the flag is undeniably bearish, in a bullish flag, the opposite is true—the trend is undeniably bullish.

Bringing it all together:

1. Pennants – Bullish and bearish, a pennant is marked by two soon-to-be intersecting trend lines. Depending on the movement before a pennant, it can be bullish or bearish.
2. No intersection – If the lines do not intersect, and instead travel in parallel, we refer to the pattern as a flag, which is a brief consolidation period that forms during a general trend.
3. Wedges – If the pennant breaks before reaching the intersection of the two points, it is known as a wedge. There is very little sense in studying wedges, as they are merely half-used pennants. However, you should know wedges as a vocabulary word for the future.