Bear pennants are one of the most popular bearish patterns to be bearish on. They consist of either a large bearish candlestick or several smaller bearish candlesticks down, forming the flag pole, followed by several smaller bullish candlesticks forming consolidation into a triangle, which forms the pennant (triangle). Look for the price to fall out of the pennant to confirm a bearish breakdown.
What Is a Bear Pennant Pattern?
A bear pennant pattern consists of a larger bearish candlestick, which forms the flagpole. It’s then followed by several smaller consolidation candles that form a pennant. A common place to see this setup is during consolidation near resistance levels; once it rejects, price action breaks down out of the apex of the pennant, which can cause an increase in pressure to the downside from sellers and shorts.
Bear pennants are bearish continuation patterns; look for these price movements to indicate that the price wants to continue declining.
Ideally, look for a bear pennant in strong or newly formed downtrends, typically after a major bearish breakdown, such as on a daily head and shoulders pattern.
This is an example of a bear pennant pattern. Notice the large orange bearish candlestick, which formed the flag pole. Following the sharp price drop, a consolidation period of both bullish and bearish candlesticks ensued. This is what formed the pennant shape. Since this is a bearish pattern, traders take a short position once the price fails the pennant formation. They use a candlestick close above the pennant area as a stop if the price reverses.
Basics
Bearish candlesticks form the pole, followed by consolidation, then a fall downwards. Bear pennants are similar to bear flags.
Both have flag poles and a consolidation forming the flag. A trader may reference a chart resembling a flag or a pennant. They have a similar shape and are easy to confuse; they could be mistaken for each other.
The pennant is more triangular in its consolidation phase, while the flag is more rectangular.
Trend Lines
Bear pennant trend lines converge at a single point during consolidation. Pennants are a classic setup for trading stock. They start with a big push in volume, forming the flagpole, with volume becoming steady during consolidation, culminating in a point that completes the pennant shape.
Ideally, the flag pole is long and strong, followed by a strong increase in selling volume to confirm the move down. The stronger the selling volume, the better. Be sure to observe what the volume bars and other technical tools tell you regarding what to expect the pattern to do next.
When bear pennants are forming, sellers are in control. Consolidation occurs when the two sides fight to regain control. During consolidation periods, many candlesticks form, which can confuse; therefore, be sure to wait for confirmation.
Bear Pennant Pattern Trading Strategy
- Watch for a bearish candlestick that forms a flag pole.
- Look for several consolidation candles that form a pennant and hit resistance levels.
- Once the price breaks down out of the apex of the pennant, take a short entry.
- Watch if the price can break below the low of the flag pole.
- Use a candlestick close above the midpoint of the pennant as a stop.
Bear Pennant Pattern Example
This is a chart example of TVIX using Trendspider. Note the prolonged downtrend on the chart. You’ll see several bear pennants on this chart. They often look like bear flag patterns. Once the price fails, the pennant area traders take a short position or trade options to the bearish side. TrendSpider is a great tool that can filter and identify bear pennants using its scanner.
This is a daily chart of $XNET. This was a prolonged downtrend marked by several bearish pennant formations on the chart. The first two were handle formations on a cup and handle, which failed. Typically, cup and handles are bullish, but these two examples show handle failure. It’s important to be aware of pattern failures and fakeouts. The last two examples were clean-looking pennants.
The TrendSpider charting platform excels at identifying candlestick patterns across various setups and time frames.
Bear Pennant Failure
Bear pennants don’t always create a bearish setup. Sometimes fakeouts occur, and the price will reverse, resulting in a bullish breakout. Before taking a short position, it’s important to wait for the price to fail the pennant. Be aware of fakeout candles. Confirmation of support failure is key for this pattern to be bearish.
Fakeout Example
The picture above shows a daily chart of $NFLX. This is an example of a bear pennant failure. The pattern also resembles a bearish flag, but they are showing the same signal. Flags and pennants often resemble each other. This bear pennant happened at the top of a rising wedge pattern, and that’s when it looked like there might be a further breakdown.
However, the pattern didn’t break down. It developed into a bullish breakout, followed by the formation of a bullish pennant, which created a significant uptrend.
Final Thoughts on Bear Pennants
Many bear pennants form on daily charts, as well as on all timeframes. This is why examining the broader overall pattern formations is important. They are a strong bearish pattern to be aware of as a trader. Even though there are fakeouts, this pattern is particularly strong during a prolonged downtrend, especially when falling wedge pattern formations occur. Use proper risk management techniques when trading a bear pennant pattern.
Frequently Asked Questions
Pennants can be either bullish or bearish. A bull pennant starts with a bullish candlestick that forms a flagpole and then consolidates, forming a pennant. A bear pennant starts with a bearish candlestick that forms a flagpole and then consolidates to form the pennant. You go long with a bull pennant and short with a bear pennant.
Unlike wedges, bullish flags have a lower top and lower bottom, and the pattern tends to follow the trend. Conversely, bearish flags have a higher top and a higher bottom, and their trendlines follow the trend. Bear flags, on the other hand, tend to slope in the direction of the trend.
