How to trade Pennant Pattern?
Today we are going to learn about Pennant Pattern
So for we have seen 7 different trading pattern and I hope you have liked it and understood better. This week let us learn about a trend continuation pattern, which is Pennant pattern.
Pennants are drawn with two trendlines that eventually converge. A key characteristic of pennants is that the trendlines move in two directions—that is, one will be a down trendline and the other an up trendline.
Different parts of Pennant pattern
There are three major parts which forms this pattern.
1. Raising up-trendline – A up-trendline, which is raising, indicating buyers are not willing to let the price go down
2. Falling down-trendline – A down-trendline, which is falling, indicates sellers are not willing to let the price to rally
3. Price Sandwich – Price should be sandwiched or trapped between the up and down trendlines, making a price consolidation.
Things to Remember,
1. Pennant pattern is very similar to Symmetric triangle pattern, but there are few differences.
a. Symmetric triangle can give breakout to either side, while Pennant is expected to give breakout mostly on the side of prior trend.
b. Pennant pattern needs a sharp rally before the pennant formation, which is not the case for symmetric triangle.
2. So when it comes to breakout of price in pennant pattern, we can normally identify the potential breakout by looking at the previous trend. If the previous trend is up then the chances of an upside breakout is much higher. Similarly, if symmetrical triangle forms in down trend then the chances of downside breakout is higher.
3. Pennant represent price consolidation between 2 rally’s.
Volume Factor on Handle part
As I always say, the volume is most important thing you need to check for technical breakout in any pattern. So when a pennantpattern is being formed, volumes will be decreasing, followed by huge increase in the volume when price eventually breaks out.
Entry, Target and SL
In an up-trending chart, you can enter into the trade once price gives the breakout above the down trendline and reverse is true for down-trending chart. Never enter before you see huge volume – it will be too early.
The target for this pattern is arrived by measuring the height of the rally before pennant formation. So if the height of the rally before pennant formation is say 100 points then the technical target is 100 points from the breakout point.
When it comes to SL, Once the price is given a upside breakout above the trendline, the trendline point becomes your immediate support and you can keep low of the zone as your SL.
For more details and examples, checkout the video:
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