Entry: after breaking the pennant's lower border at point (4)
Take profit: identified by measuring the pennant's pole height, which is the vertical distance between points (1) and (2), that measurement is then applied from the breakout rate (4)
Stop loss: the pennant's highest high (3)
BEARISH PENNANT PRICE ACTION
This chart pattern starts forming with bears already in control of the exchange rate's sharp downtrend. When bulls enter the market, trading is contained briefly in a -mini- symmetrical triangle shape. Bears then break that triangle's lower resistance, and the exchange rate continues its downtrend.
Let's break down the pattern formation!
A sharp downwards price action is initiated from (1) till it finds the first resistance (2), creating the pennant's pole.
Price action reverses direction from the first resistance (2) and goes upwards till it finds the first support (3)
Price action bounces in (2-3) range, creating higher low(s) and lower high(s).
The pattern is completed when price action reverses direction from the last touch to the pennant's upper border and goes downwards till it breaks the pennant's lower border at point (4)
NOTES ON BEARISH PENNANT
Before the breakout, at least two lows (including the pennant's pole low) and two highs are the minimum for a valid pattern, more touches are acceptable.
The pennant's pole is a sharp downwards price action.
Volume is usually high at the pennant's pole, as well as when breaking the pennant's lower border.
This pattern is commonly found on short-term and medium-term time frames.
BEARISH PENNANT REWARD:RISK
This pattern is known for its high R:R.
R:R depends on the highest high to breakout distance (3-4), compared to the pennant's pole height (1-2)
Always remember that the stop loss level explained above is absolute, the actual stop loss rate for your trade setup should be a bit beyond those levels to give the trade setup some room to breathe, and of course, calculations for position size and R:R should be done with respect to that rate.