There are various terms in the world of trading, including crypto assets, including bullish pennant.
This one term may still be entirely foreign to those who are not traders or investors.
However, among these investors, the bullish pennant pattern is a critical technical analysis.
So, to learn more about what a bullish pennant means and how to use it in trading, see the full review below.
What is Pennant?
Pennant is a type of continuous pattern in technical analysis that is created when an asset (flagpole) moves.
Typically, a pennant is accompanied by a period of consolidation with converging trend lines and a breakout move in the same direction.
Many traders use this pattern in conjunction with other forms of technical analysis that can be used as confirmation.
This pattern’s shape resembles a triangle displayed by two converging trend lines.
However, the triangular line can slope up, down, and sideways.
The pennant pattern is then divided into two, namely, bullish pennant and bearish pennant.
What Does the Bullish Pennant Mean?
A bullish pennant is a continuation pattern that signifies a pause in price revival in an uptrend and strengthens.
A bullish pennant signals a pause in the price increase, allowing traders to buy and profit from the remainder of the next price increase.
This pattern occurs when the price moves in a strong uptrend, accompanied by a correction and a triangle pattern that shows consolidation.
However, because the bullish sentiment was still strong, the price continued its uptrend by breaking the triangular resistance line.
This consolidation occurred because some buyers took profits while new buyers joined the market, so the price was pushed up again, and the uptrend continued.
The buy entry can be made after the price breaks the triangular resistance line with a stop loss of a few pips below the triangular support line.
Meanwhile, the take profit/target level is set as low as pips at the start of the uptrend until after the correction level (x) so that an adequate risk or reward ratio can be obtained.
Characteristics of the Bullish Pennant
There are several characteristics of a bullish pennant that traders must know, which are as follows:
1. Flagpole / flagpole
The bullish pennant pattern always starts with the flagpole, the initial strong move before the symmetrical triangle.
The symmetrical and pennant triangles have conical bodies that formed during periods of consolidation.
In this case, prices will consistently reach higher lows and lower highs to form two converging trend lines that describe the shape of the cone.
However, the pennant includes a flagstick at the start of the pattern, which is absent in the symmetrical triangle formation.
The flagpole is a very important characteristic when the price suddenly rises/falls dramatically in the current trend’s direction, which forms an almost vertical line.
The sharp move was accompanied by a large volume and marked the beginning of an aggressive move in the current trend.
Then, the price stopped and formed a pennant body before breaking out in the direction of the trend with renewed strength.
2. Breakout levels
This breakout level is divided into two: one at the end of the flagpole and the other after the consolidation period, where the uptrend or downtrend will continue.
On a flag/bullish pennant, a break above the resistance indicates that the previous advance has been resumed.
Pennant is a triangular pattern when the market consolidates between flagpoles and breakouts.
Later, the two concurrent trend lines will form a triangle or what is later referred to as a pennant.
Bullish Pennant Flag
In general, price movements dive high, which depicts a higher high (HH) as if it were a pole that will precede a bullish pennant flag.
Then, it will be followed by a small price correction that looks like a flag.
Technically, the foundation for forming the bull flag pattern is a higher high (HH) and a higher low (HL).
A higher high indicates that the buying trader can lift the price.
Meanwhile, higher low shows that buying traders are taking profits, and prices are dropping slightly before continuing to strengthen.
How to Identify a Bullish Pennant
Regarding how to identify a bullish pennant, please first look at the image below:
As seen above, before the flag-like pennant was formed, the price rose sharply.
This is known as a pennant “pole,” which can represent the start/continuation of an uptrend, and its size is important when a trader is calculating where to place a target profit for his buy trade.
Generally, these pennant triangles are tiny about the size of the overall uptrend, making these patterns difficult to spot.
However, with practice, traders will gradually learn when to look and how to spot these patterns.
How to Use the Bullish Pennant to Trade
Then, how to trade a bullish pennant?
When trading using a bullish pennant, there are two methods to choose from, namely:
First, as a trader, you must wait until the market breaks above the resistance line.
Second, by using a commonly used rule that the market will often reverse just before the breakout begins.
Meanwhile, in a bullish pennant pattern, traders can enter buy when the price crosses the triangular resistance line.
In this case, the stop loss is a few pips below the triangular support line.
The target level is determined by pips when the uptrend starts until the correction level ends.
A pennant is a type of continuous pattern in technical analysis created by an asset movement (flagpole).
Typically, a pennant is accompanied by a period of consolidation with converging trend lines and a breakout movement in the same direction.
Meanwhile, the characteristics of a bullish pennant consist of flagpoles, breakout levels, and pennant.
Do you understand a bullish pennant and how to use it in trading?