A bull pennant is one of the most popular bullish patterns. They consist of either a large bullish candlestick or several smaller bullish candlesticks up, forming the flag pole, followed by several smaller bearish candlesticks forming a consolidation into a triangle, which forms the pennant. Look for the price to move out of the pennant to confirm a bullish breakout.
What Is a Bull Pennant Pattern?
A bull pennant pattern consists of a larger bullish candlestick, which forms the flag pole. It’s then followed by several smaller consolidation candles that form a pennant. Any bull pennant patterns that consolidate near support levels, then, when support holds, price action breaks out of the apex of the pennant.
Bull pennants are continuation patterns found on all charts, a short-term continuation pattern.
It has a brief consolidation period before resuming its upward or downward move. Bull pennants are similar to bull flags. Day traders, in particular, love the bull pennant pattern because it is one of the most popular patterns for long-bias traders.
Both bull pennants and bull flags feature a flagpole. The flagpole should have high volume, creating a flagpole that gives more credence to the pattern’s strength.
The pennant forms a triangle, whereas the flag is more rectangular, telling the same story. Bulls are in control, smashing through bears, a line of resistance.
People get excited when they see bull pennants or flags. It is essential to keep emotions in check because excitement can cloud your judgment. And you don’t want to make a mistake.
We got these Japanese candlestick patterns from a rice trader named Homma. He realized even back then that emotions have a big impact on price. Whether driven by greed or fear, traders will always be influenced by those emotions.
Bull Pennant Pattern Basics
Bull pennant trading has converging trend lines during consolidation. The consolidation period is usually where I like to enter. Watch the level 2, time and sales, and volume bars.
Try to limit your emotions when trading; instead, trade systematically and robotically. Remember, we, as traders, are trading against algos and HFTs. It is important to think like a robot when it comes to trading.
So, the pennant part is a wedge on top of the flagpole. The wedge moves together to form the pennant, resembling a flagpole. The flagpole is typically represented by bullish candlesticks, made of one large one or a couple.
Similarly, the flagpole shows a large volume coming (if there isn’t, the move is more suspect), while the pennant has a weakening volume, hence the formation.
If you focus on volume bars and trends, you will have a better chance of trading bull pennants successfully. Regarding trading, it’s all about the battle between buyers (bulls) and sellers (bears). This pennant pattern is bullish. The buyers are in control.
Hence, consolidation that occurs in this trend is the tug of war between the two sides. Notice the indecision candles, such as doji candlesticks, dragonfly doji candlesticks, or even hammer candlesticks, within the consolidation period.
An area to keep an eye on for a possible entry would be to enter inside the pennant part (wedge part) and enter near or at the 9EMA on a specific time frame. The 9 EMA is one of my favorite moving averages, also known as the tradeline.
Candlestick Formation
Candlesticks group together to form many different patterns. There are patterns within patterns. That is why it is important to be able to spot patterns.
If you rely only on bullish patterns but see bearish candlesticks, you can get thrown off.
Patterns break down all the time. There may be a large bullish continuation pattern, but inside of that is a smaller bearish pattern. Get good at finding patterns within patterns.
It is also important to avoid getting bogged down in the minutiae of what a pattern is. Patterns like the bull flag, symmetrical triangle, and bull pennant can all look alike.
They all tell a similar story: a trend continuation is imminent. Instead of focusing so much on exactly what a pattern looks like, focus on the message being sent. Read between the lines.
Technical Analysis
Traders recognize the importance of candlesticks in technical analysis; they cannot rely on simple moving averages or VWAP without them.
Candlesticks are the first line of defense when trading. Consider candlesticks as an early warning system for what price action may do.
That said, technical analysis and candlestick patterns are closely intertwined. Drawing trend lines without candlesticks is challenging, and patterns cannot be created without the use of technical indicators. Those trend lines map out the patterns.
Breakout patterns, such as the bull pennant, happen when a stock breaks resistance. Buyers get excited. Candlesticks and moving averages form those key levels and become important buy and sell signals.
Being able to draw correct trend lines is important. If drawn correctly, the entry could be good. All of this works hand in hand.
The more confirmations, the more experience, the better chance at a successful trade. Remember that not all trades will be successful; however, technical analysis can help increase the likelihood of a successful trade. Win some, lose some.
To be a good trader, it is important to understand how to be a good loser. It sounds messed up, but it is the truth, and not many trading communities will tell the truth.
When talking about trading, they will only focus on wins, never losses. It is not like that.
Bull Pennant Pattern Trading Strategy
- Watch for a bullish candlestick that forms a flag pole.
- Look for several consolidation candles that form a pennant and hold support levels.
- Once the price breaks out of the apex of the pennant, take entry.
- Watch if the price can break above the high point of the flagpole.
- Use a candlestick close below the midpoint of the pennant as your stop.
Bull Pennant Pattern Example
In this chart example, you’ll see that the bull pennant looks similar to a symmetrical triangle, but there is a flagpole base. Traders would enter a long position once the price breaks out of the apex area. A stop loss would be placed below the base of the apex area if the price reverses.
Multiple bull pennants on the $HD chart bounced off the 9-day EMA and regained momentum. You can see that the pennants looked similar to bull flags. When the price broke the apex level, a strong bullish uptrend ensued. Be aware that when the price extends beyond the nine EMA, it will eventually gravitate back to that level.
Final Thoughts on Bull Pennant Pattern
Bull pennants are continuation patterns during a strong trend. In the charts shown above, we have seen the pennant formation, break resistance, and subsequent continuation upward. Those resistance levels are important.
Because a pattern can break down the understanding that confirming the continuation is important, the real bodies and wicks of candlesticks, as well as the trend lines, form resistance.
If the pattern breaks down, going short or taking profit might be appropriate! Do not think that every pattern will do the same thing every time.
If you want to see the hidden hand behind the pattern, look at a platform like FlowTrade, which shows what the instructional money is doing. Knowing this helps a lot in building confidence in the trade.
Every point in the market is unique. Every trading day and minute is like a snowflake. No two are alike, but similarities will be found. The volume coming in also confirms the move. It is important to study these patterns. Use proper risk management techniques when trading a bull pennant pattern.
Frequently Asked Questions
A bull pennant is similar to a bull flag, indicating that the trend of a security will likely move up with strong bullish momentum. The breakout area of the apex typically has strong volume bars to confirm the breakout.
A bullish pennant is a short-term breakout pattern. A rising wedge is a steady bullish pattern that eventually turns bearish when the price fails to reach the angular support.
Pennant patterns can be either bullish or bearish, based on the preceding price action. It's a continuation pattern, which means that the price typically moves in the direction of the previous movement.
A bullish pennant is a bullish continuation pattern, indicating that the price is likely to continue its uptrend.
