![]() ![]() On the 1-hour chart of USD/JPY above we show the position of our protective stop, the position of our profit target, while going long this currency pair. We decided to show an example of how to trade a bullish pennant. A stop-loss needs to be placed just above the upper trend line (resistance). A short position needs to be entered into, when price action penetrates the lower trend line (support). In a downtrend the profit target is measured by taking the distance from the beginning of the steep trend to the first reversal point in the pattern and projecting this distance from the point, where a breakout to the downside occurs. A stop-loss needs to be placed just below the lower trend line ( support). A long position needs to be entered into, when price action penetrates the upper trend line ( resistance). In a rising trend the profit target is measured by taking the distance from the beginning of the steep trend to the first reversal point in the pattern and projecting this distance from the point, where a breakout to the upside occurs. It occurs, once a trend line is breached, and is usually in the same direction as that of the prior trend. They wait for the breakout, following these patterns. ![]() ![]() Traders usually do not act, until a complete formation has appeared. A crucial feature to look for, in order to identify them, is the occurrence of a sharp and steep trend, preceding these formations. Trading these patternsįlags and pennants are preferable trading patterns. On the 1-hour chart of USD/JPY above another bullish pennant is visualized. Here we can see what a bullish pennant looks like. On the breakout, following the pattern, volume increases. As the pennant formation develops, volume usually decreases. Pennants are different from wedges, because they form in a shorter amount of time and are preceded by a huge price trend. Sometimes these formations may be horizontal or in the same direction as the major trend. The slope of pennants usually is in the opposite direction compared to that of the prior trend. Trend lines of flags are usually parallel. The difference between the two patterns is that trend lines of pennants eventually converge, which forms a mini triangle. On the 1-hour chart of AUD/USD above we can see another flag. ![]() Here we can see what a bullish flag looks like. Flags are usually preceded by very steep price movement. These patterns form over a short period of time – from several days to several weeks. Volume usually decreases during the formation of the flag. Sometimes their slope may coincide with the direction of the trend, which implies that this trend may be even stronger. Flagsįlags represent short channels, as their slope is in the opposite direction compared to that of the prior trend. Many traders prefer flags and pennants, namely because of this circumstance. The majority of market players continue holding their positions, exits from the market are almost none, which urges more traders to join in the direction of the previous trend.Īfter a breakout in either direction occurs, price action usually runs immediately, with few pullbacks or throwbacks being present. As both formations show a certain consolidation in the market, this suggests that the prior trend is strong. ![]()
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