What is Pennants Chart Pattern?
Pennants are chart patterns, formed by price action, which is contained with in a small symmetrical triangle. This is created when there is a minor profit booking in either an uptrend or a downtrend.
They are the pressure areas in a stock chart, which may be a minor support or resistance, or it may even be a minor target. Here some traders want to book profit. But what ever the trend was, remains unchanged. The support trend line of this pattern is up sloping and the resistance trend line is down sloping. They converge and meet on right side to form a tiny symmetrical triangle.
It is a continuation chart pattern. It is so named because the pattern is in the form of a flag which is tapering at the end. Hence the name Pennant Chart Pattern.
Trend is your friend. Dance with the friend. Tune to the trend.
This pattern is formed because of minor increase in one of the two great forces which move the price up and down, that is demand and supply.
These are pressure areas in either an up trend or a down trend. Here the trend does not change into opposite trend. It only changes to a range bound side trend or a neutral trend. These are minor target areas or minor support and resistance areas where some traders wish to book some profit. These are just hiccups in a trending market.
In an up trend as the target area or the resistance area is approached there is increased selling. As the supply increases the price rise halts. The supply is almost absorbed by strong demand.
In a down trend as the target area or the support area is approached there is increased buying. As the demand increases the price fall halts. The demand is almost absorbed by strong supply.
So the price remains horizontal. Many candlesticks are stacked horizontally with decreased range.
When a line is drawn above the high of the price bars forming this pattern, we get down sloping resistance trend line. This forms the upper border of the pennants pattern. The line drawn below the low of the bars forming this pattern is up sloping support trend line. This forms the lower border of this pattern.
After all the selling is exhausted the bullish activity becomes apparent. When the demand becomes more than the supply the price breaks out of the pennants pattern towards up side. Thus the up trend resumes and continues.
And after all the buying is exhausted the bearish activity becomes apparent. When the supply becomes more than the demand the price breaks out of the pennants pattern towards the down side. Thus the down trend resumes and continues.
Study the charts given below.
This chart shows a bullish Pennants continuation pattern.
Pattern trading is one of the strategies of making money in stock trading. Among the chart patterns pennants pattern formation gives us the opportunity to enter or re-enter a trending market.
Pennant patterns are just halting stations in an ongoing trend. The trend stops to continue. It will not cause a trend reversal. The market remains horizontal or neutral. Trading volume may decrease or remain intact. This pattern is a small resting place for the running market and it gives us an excellent trading opportunity.
Pennants chart patterns in an up trend are bullish continuation patterns. So if the price rise stops, get ready to go long or add to your position above the pattern. Always protect the trade by placing a sell on stop order below the low of the pattern.
Whereas in a down trend pennant patterns are bearish continuation patterns. So if the fall of the price stops, get ready to go short or add to your short position below the pattern. Always protect the trade by placing a buy on stop order above the high of the pattern.
First one is Bullish Reversal Pattern, Next three are Bullish Continuation Pattern and the last one is Bearish Reversal Pattern.
Placing a stop loss order is a must because many time the trend reversal starts with this formation. When the steam is completely over the trend reverses, the price breaks out in the opposite direction. Now this pattern becomes a reversal pattern.
A small consolidation with parallel upper and lower trend lines, forms a Flag Chart Pattern. Click on the link given below to study about them.
There are many more chart pattern formation used in pattern trading. Some of them are listed below. You may click on the name of each chart pattern listed below to learn and understand more about them.
Continuation Chart Patterns