Bullish Pennant Patterns: Identify Continuing Market Trends

Be it bullish or bearish, most pennant patterns are indicative of a future trend continuation. Pennant patterns occur during a long bullish or bearish rally. During the actual pennant pattern price action, investors could:

  • Add to their positions
  • Consolidate their positions
  • Wait for a break in the trend

Pennant Patterns vs Flag Patterns

Pennants are closely related to flag patterns. Aside from their shapes, they both exemplify a consolidation period in between a bullish rally or bearish decline in a financial instrument’s price trend.

The below chart of the EUR|USD foreign currency trading pair displays the development of a pennant pattern during a bullish rally:

Backtesting Bullish Pennant Patterns

When backtesting day trading indicators, bullish pennant patterns can be identified by:

  1. A gradual rise in the financial instrument’s price
  2. A swift and large ‘flag pole’ development to the upside
  3. A descending ‘pennant’ pattern
  4. A swift and large ‘break’ from the pennant pattern to the upside
  5. A gradual continuation of the financial instrument’s uptrend in price

Between pennant development, formation and break, about 8 to 12 weeks usually elapses.

Trading Bullish Pennant Patterns

Some potential trading strategies during the formation of a pennant pattern are:

  • During a bullish rally, once a strong break on high volume is established (flagpole formation), a potential trade can be made by ‘shorting’ or ‘fading’ the bullish break
  • Once the pennant begins developing, you could trade it in a bearish channel formation by buying the rises, setting stops to lock in profits and selling the decreases until the break occurs
  • Once the bullish break occurs on high volume, you could buy the financial instrument and set a trailing stop to lock in profits

Ready to backtest for bullish pennant patterns with NinjaTrader’s free trading simulator & live market data? Download now and register for a free futures data trial to start exploring the markets!