Entry: after breaking the pennant's upper 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 lowest low (3)
BULLISH PENNANT PRICE ACTION
This chart pattern starts forming with bulls already in control of the exchange rate's sharp uptrend. When bears enter the market, trading is contained briefly in a -mini- symmetrical triangle shape. Bulls then break that triangle's upper resistance, and the exchange rate continues its uptrend.
Let's break down the pattern formation!
A sharp upwards 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 downwards till it finds the first support (3)
Price action bounces in (2-3) range, creating lower high(s) and higher low(s).
The pattern is completed when price action reverses direction from the last touch to the pennant's lower border and goes upwards till it breaks the pennant's upper border at point (4)
NOTES ON BULLISH PENNANT
Direction
Continuation
Type
Bullish
Occurrence
High
Common term
Short-Medium
Before the breakout, at least two highs (including the pennant's pole high) and two lows are the minimum for a valid pattern, more touches are acceptable.
The pennant's pole is a sharp upwards price action.
Volume is usually high at the pennant's pole, as well as when breaking the pennant's upper border.
This pattern is commonly found on short-term and medium-term time frames.
BULLISH PENNANT REWARD:RISK
This pattern is known for its high R:R.
R:R depends on the lowest low 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.
