18 dec Bear Pennant: Why I Avoid This Unreliable Chart Pattern

To make money off of this, you’ve got to understand its structure and dynamics. The bear pennant is a continuation pattern, meaning it generally signals that the current trend (in this case, a downtrend) is likely to continue. If you get information on one forming, prepare for some bears running through the forest of your chart. In this article, you’ll learn the ins, the outs, and all there is to know about trading the bear pennant pattern. From identifying to actually trading it, you’ll get the knowledge, pointers, and maybe some unfiltered advice.

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The shape and location of the pennant on the chart matter. If the pattern is forming near the top after a strong uptrend, it might not be a bear pennant. Context matters, just like you wouldn’t expect to find a forest in the middle of a desert. Volume is a critical factor in confirming patterns, but it’s not just about the bear pennant.

What is the Psychology of Bear Pennant Formations?

This lack of range expansion is characteristic of the consolidation phase. Traders should be alert for a sudden increase in volatility and a break below the pennant, which often signals the pattern’s completion. In early April 2023, Gold triggered a bull pennant chart pattern’s decisive upside breakout. Traders got a confirmation of the strength as the precious metal exceeded $2,010 and $2,003 highs. Moreover, the chart shows a completion of the Fibonacci retracement at $2,018, and the rally triggered a monthly breakout, thus confirming the strength.

It is formed by two converging trend lines connecting the swing highs and lows of a stock’s price action. It’s a universal pattern you can find in Forex, futures, and even shares. The key is to adapt your strategies and risk management according to the market you’re playing in.

Subsequently, the price declined rapidly, mirroring the initial height of the flagpole. Note that the bull pennant pattern forms during an uptrend, not a downtrend. This article will teach you to recognize and trade currency pairs using the bear pennant chart pattern.

Bearish Pennant Pattern Components and Formation

A downtrend in price is a series of lower periodic highs and lows. Once identified, a trendline may be drawn to help contextualize price action. The pattern also resembles a bearish flag, but they are showing the same signal.

Why Is Trading Bearish Pennants Risky

• The bearish pennant pattern is an unreliable chart indicator, with success rates of 54 percent during a bull market and a low average profit of 6%.
• The bearish pennant pattern suggests that downward pressure is on the market.
• The strategies work often enough to be profitable over time, but they fail often enough to destroy accounts that ignore proper risk management.
• Set a take profit level by projecting the flagpole height from the breakout point.
• Think of it as a short-lived pause in a market downtrend, often represented by a small triangular formation on your chart.

Flagpole indicates that the price is traded in a series of lower lows and higher highs. The bear pennant chart pattern represents a period of consolidation. Once the consolidation occurs, there is a strong initial move in prices. This pattern generally happens when prices consolidate after a sharp movement downwards. This triangle consists of converging trend lines connecting the lows and the highs during the consolidation period. Traders generally place a sell limit order at the support or lower trendline.

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This pattern, characterized by consolidation on lower volume, reassures traders of the downtrend’s continuation. The bear pennant pattern is highly versatile and can be utilized across various time frames and market conditions. Whether you’re a day trader who prefers to look at minute-by-minute charts or a long-term investor who analyzes weekly trends, this pattern can provide valuable insights. Furthermore, the pattern can be applied to various asset classes, including stocks, forex, crypto, and commodities, enhancing its utility as a versatile analytical tool. The bear pennant pattern is a powerful tool in the arsenal of technical traders, offering more than just signals for the potential continuation of downtrends. Then, sellers re-engage in the market and push to new lows.

Once the lower trend line breaks, the pattern is activated, and the upper trend line’s break invalidates the formation. The sellers benefit from the temporary break and consolidate their profits, preparing for the next price push downwards. The phase of consolidation in price ends when the sellers ensure the breakout. It should take place since the lower and upper trend lines converge. This is different from the bear flag since the consolidation phase lasts longer, and the two trend lines are parallel.

• In a triangle pattern, the highs and lows don’t have to converge as tightly as they do in a pennant.
• Tweezer top patterns are two-candlestick reversal patterns with coequal tops.
• The shape and location of the pennant on the chart matter.
• Have you ever noticed a pennant shape on a stock chart and wondered – is that a bullish or bearish pattern?

The first phase begins when sellers push the financial instrument’s price lower, creating a sequence of lower lows and lower highs. Enter a short position upon the retest when the price starts moving down again after hitting the resistance. Place your stop loss just above the highest point of the retest or the pennant’s peak to minimize potential losses if the trend reverses. Measure the height of the pole and project it downwards from the breakout point to set a realistic take-profit level, capturing the anticipated continuation of the downtrend. In the 15-minute GBP/USD chart, a strong bearish movement led to the consolidation of prices, forming a pennant.

The bear pennant is an unreliable indicator, as evidenced by over 1,600 perfect trades tested in the Encyclopedia of Chart Patterns. There are various courses available that focus on teaching technical analysis and specific trading patterns like the Bear Pennant. These courses often contain theoretical and practical examples of investment strategies to help traders get a comprehensive understanding of the market. Such educational resources are excellent ways to learn about the dynamics between buyers and sellers in the market. You’re in and out, aiming for small, consistent gains while mitigating risks. Second, you can notice that the triangle part of the formation usually slopes up in the bearish pennant pattern, while it slightly slopes down or looks flat in the bull one.

In the above chart of HFCL Ltd, one can observe that a breakout materialized following a consolidation period, thus providing a confirmation of the bullish continuation. Individuals can find charts like these on TradingView to improve their understanding of the concept. So, let us look at another chart with a breakout above the upper trend line, demonstrating a bullish continuation. Our lessons, designed to help you learn to trade, cover everything from smart buying and selling decisions to the nuances of trends and candlestick patterns.

The bearish pennant setup provides a very limited 6% gain and an erratic trend. Additionally, traders cannot identify accurate target prices before entering the trade. No, a bear pennant pattern is a weak signal for traders and is not profitable. It provides an inaccurate way to identify potential short-selling opportunities creating low-probability trades. Tom Bulkowski’s bear pennant pattern research confirms an accuracy of 54 percent for bearish pennant patterns with an average profit potential of 6 percent.

And you should also pay attention to other indicators to confirm this breakout. Identifying a bear pennant requires attention to several key elements. Individuals new to trading may find the concepts of pennants and flags confusing.

The triangular flag pattern is a relatively reliable predictor of future price movements, but there are a few things you need to keep in mind. This breakout can be a strong move, so you’ll want to use a tight risk-to-reward ratio to maximize your profits and minimize your losses. The occurrence of this pattern tells us that there was a clear down-trending tendency in place with persistent selling pressure. You should notice that the pattern is most reliable when the consolidation period lasts between 2 and 3 weeks. To answer this question, you need to understand the characteristics of a pennant formation, and how it significantly affects the direction of the overall market. When this happens, there is a high probability that the prevailing downtrend will continue as the support level has been broken.

The bear pennant pattern is a powerful trading signal within the  CFD trading environment, indicating a continuation of a downtrend. A bear pennant pattern is a trading pattern indicating a downward price move’s impending continuation. It provides traders with the opportunity to enter a short position and make financial gains.

Sometimes the consolidation phase extends far beyond normal timeframes, draining the pattern of its predictive power as market conditions shift. Other times, broader market rallies or sector-specific news overwhelms the technical setup, turning what looked like a continuation pattern into the start of a recovery. This behavioral split explains why bear pennants work so reliably. The smart money uses the pause to position for further declines while amateur traders provide the buying interest that creates the temporary floor. The Encyclopedia of Chart Patterns by Tom Bulkowski details the reliability and success rates of 65 chart patterns and shows you how to trade them. It is an indispensable resource for traders and investors seeking to enhance their profitability by leveraging stock chart patterns.