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When markets pause after strong moves, pennants often show and emerge. These patterns signal the likely resumption of the prior trend, whether up or down. Understanding both the bullish pennant and bearish pennant can enhance your trading strategies.
A pennant forms after a strong directional move (the “flagpole”) followed by a short consolidation phase where price contracts between converging trend lines. After the consolidation, a breakout in the direction of the original move often occurs.
Pennants are continuation patterns, they tell you that the prior trend (up or down) is likely to resume continue the trend.
for example this trading chart on Gold (XAUUSD):
• A strong upward surge forms the flagpole. (The upper straight long arrow )
• Price consolidates in a small triangle shape (the pennant), with two converging trend lines (Black lines on the chart under).
• Breakout to the upside confirms the pattern and signals trend continuation.
When you see a bullish pennant, it suggests the uptrend is taking a breather, not reversing. It offers a structured setup: you can define your entry after breakout, set a stop under the pennant low, and forecast a target based on the height of the flagpole.
• Entry: After price breaks and closes above the upper trend line of the pennant.
• Stop loss: Just under the pennant’s lower trend line or recent swing low.
• Target: Flagpole height added to the breakout point.
• A strong downward move builds the flagpole (Black straight line)
• Price then enters a tight, triangular consolidation (the pennant in black support/resistance black lines) with shrinking range.
• A breakout downward from the pennant signals resumption of the downtrend.
The bearish pennant indicates the selling pressure is pausing, not ending. Traders who recognize it can prepare for a short position with clear risk reward structure: entry below breakout, stop just above the pennant, target based on the flagpole.
• Entry: After price breaks and closes below the lower trend line of the pennant.
• Stop loss: Just above the pennant’s upper trend line or recent swing high.
• Target: Height of the flagpole projected downward from break point.
Pattern | Trend before pattern | Shape of consolidation | Breakout direction | Typical use |
Bullish Pennant | Uptrend | Triangular consolidation | Upward breakout | Continuation long |
Bearish Pennant | Downtrend | Triangular consolidation | Downward breakout | Continuation short |
• Entering before the breakout is confirmed, this exposes you to fake outs.
• Setting unrealistic targets without reference to the flagpole size.
• Forgetting to define and manage stop losses regardless of pattern strength.
• Treating patterns as guarantee.
Pennants, whether bullish or bearish offer clean, actionable setups in trending markets. They help you align with momentum, define risk clearly, and target measured moves.
Disclaimer: The content published above has been prepared by CFI for informational purposes only and should not be considered as investment advice. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell. The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI. Market data is derived from independent sources believed to be reliable, however, CFI makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients.
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