Bearish Pennant Chart Pattern

In this lesson, we will discuss the following:

1. What is a pennant?

2. What is a bearish pennant?

3. When does this develop?

4. How do we identify it and techniques to make a profit from the second significant fall in price?

Pennant

A pennant is a small symmetrical triangle or flag-shaped short-term continuous pattern that expands wide and mingles like a cone as the pattern matures. It is formed when the stock movement is large.

Bearish Pennant

This pattern is bearish in nature and indicates that the current downtrend in price may continue.

It is a continuous pattern where a pause is created in the price movement in a mid-way through a heavy downtrend.

It creates an opportunity for short trading, looking to make a profit from a second significant fall in price.

When Does A Bearish Pennant Develop?

The bearish pennant develops when there is a sharp price drop, and it looks like a triangular flag as the price moves sideways.

This slowly makes lower highs and higher lows.

The downtrend continues with another identical-sized fall in price.

How To Identify A Bearish Pennant?

The chart below is an illustration.

Number 1: Pole of the pattern

Pennant’s pole: There was a sharp drop in price before the formation of flag-like pennants, known as pennant poles.

The pole indicates the start or the continuation of the downtrend.

The pole is necessary for the calculation part in placing the profit target for a sell trade.

This pattern is hard to spot as the size of the triangular pennant is relatively tiny compared to the size of the entire downtrend.

We can learn to spot the pattern with practice.

Practice Session

Identify the bearish pennants.

Exercise 1: Identify the bearish pennant. Show exercise

Exercise 2: Identify the bearish pennant. Show exercise

Trading the bearish pennant

Technique 1

“Trade as soon as the price breaks out of the triangle pattern.”

Enter the trade when the candlestick has closed below the pennant’s lower trend line.

The chart below is an illustration.

Number 1: Pole of the pattern

Number 2: Area where price has broken the lower support of the pennant

1- Sell order (short entry)

2- Stop loss

Place your profit target.

Before the consolidation of the market, measure the initial fall in price.

Place the profit target the same distance below the pennant’s breakout point.

Practice Session

Exercise 1: Where would you place the entry, stop loss and take profit? Show exercise

Technique 2

“Wait till the price comes back to test the lower trend line as resistance.”

Enter your trade after the price falls below the pennant's lower trend line.

Once support breaks, place a sell order after the price retests that trend line.

The broken support now becomes resistance.

The chart below is an illustration:

Number 1: Pole of the pattern

Number 2: Area where price has found resistance at the previous support line.

Number 3: Distance between entry and take profit tp3 (the same height as pole number 1).

1 Sell order (short entry)

2 Stop loss

3 Take profit

Practice Session

Exercise 1: where would you place the entry, stop loss and take profit? Show exercise

Nut Shell

An overview of the lesson discussed so far

The Bearish pennant develops in a downtrend.

Selling opportunity: This pattern is bearish in nature and indicates that the current downtrend in price may continue. It means possible selling opportunities.

When there is a sharp price drop, it looks like a triangular flag as the price moves sideways.

Enter the trade after the support level has been broken, either on a breakout or retesting the pennant's lower trend line.

Place your stop loss above the other side of the pennant.

The profit target is placed the same distance under the entry point as the height of the pole.