Bear Pennant Pattern What Is It, Vs Bull Pennant, How To Trade?
The price dropped by around 40% from $1.185 to $0.848, and then it consolidated in a tight trading range for about 5 days. Pennants are considered to be continuation patterns, which means that they signal a continuation of an existing trend. This signals a pessimistic outlook on the market, and often leads to further declines after a breakdown from the pattern.
- Ultimately, the best approach will depend on the trader’s risk tolerance, trading style, and market conditions.
- Inside the pennant, there is a psychological battle between buyers, who are facing losses, and sellers, who remain calm.
- Stop-loss orders should be placed just above the highest point of the pennant to mitigate risk.
When a bear pennant pattern fails, the asset price fails to achieve the price target or reverses, pushing the trade into a loss situation. Traders should pay attention to volume when trading a bearish pennant pattern. Higher volume on the downward breakout is often considered a trend confirmation. This means traders should be vigilant and wait for higher volumes before entering a trade on any breakout situation. There are various courses available that focus on teaching technical analysis and specific trading patterns like the Bear Pennant.
Following the bear pennant pattern sharp price drop, a consolidation period of both bullish and bearish candlesticks ensued. Since this is a bearish pattern, traders take a short position once the price fails the pennant formation. They use a candlestick close above the pennant area as a stop if the price reverses. The pennant pattern is a technical analysis formation that signals a brief period of consolidation after a strong price move, either up or down.
- Trading patterns can provide valuable insights into market trends and help investors make informed decisions.
- ✔ Suitable for various timeframes, making it a versatile tool for different types of traders.
- This is when prices break out from the triangle to the downside, signaling a continuation of the downtrend.
- The occurrence of this pattern tells us that there was a clear down-trending tendency in place with persistent selling pressure.
PRECAUTION: Nearby Support or Resistance
Traders can use this signal to enter short positions as the bearish trend resumes. As prices reach lower levels, traders decide to take profits, resulting in a consolidation or price bounce. This profit-taking phase introduces an element of caution and a desire to secure gains among short sellers. However, the overall sentiment remains negative, with traders viewing the consolidation as a temporary price pause rather than a shift in trend. The bearish pennant pattern suggests that downward pressure is on the market.
Wait For The Breakout
If you’re seeking alternatives, the wedge pattern is another formation that traders frequently encounter, and it comes with its own set of advantages and drawbacks. Being aware of the strengths and weaknesses of various patterns can help you make more informed decisions. For an in-depth look at the pros and cons of the wedge pattern, this guide has got you covered. If the pennant drags on too long, or the range starts expanding instead of contracting, be cautious. This isn’t a teddy bear you’re dealing with; it’s a wild animal that can turn on you.
Bear flags, on the other hand, tend to slope in the direction of the trend. Flags are rectangular and involve parallel trend lines, whereas pennants are small and narrow triangles. Recognizing these differences ensures traders do not misinterpret the patterns. Here is an example of a bear pennant that formed on the Bitcoin chart during a downtrend in price. After the clear downtrend in the first half of January a bear pennant formed in the second half of January before the downtrend continued in the first week of February.
