Sentiment: Bearish
Direction: Continuation
What Is The Bear Pennant Chart Pattern?
A Bear Pennant is a bearlish chart pattern commonly found mid-trend as a continuation pattern.
A bear pennant consists of a sharp move downward in price to create a pole.
After support is reached, consolidation forms in a converging triangle pattern to form the pennant shape.
How To Identify The Bear Pennant Pattern?
Strong bearish price action encounters a support that sends the price back up.
This leads in a consolidation that becomes more compact as lower highs and higher lows are created.
In addition, upper and lower trendlines appear to converge.
What Is The Psychology Behind The Bear Pennant Pattern?
The Bear Pennant pattern is a continuation chart pattern that can provide traders with valuable insights into the market’s psychology.
It’s characterized by a sharp price decrease (the flagpole) followed by a period of consolidation (the pennant).
The pennant is typically a symmetrical triangle, with the upper and lower trendlines converging towards each other.
The pattern typically takes several days to several weeks to form and is a sign of a potential continuation of the previous downtrend.
Traders interpret the pattern as a sign of a temporary pause in the market’s bearish sentiment, where sellers and buyers are evenly matched, but ultimately sellers regain momentum and push the price lower.
The psychology behind the bear pennant pattern is that the sharp price decrease represents a period of strong selling pressure, where sellers are in control and pushing the price lower.
However, some sellers take profits, and buyers step in to take advantage of the low prices, causing the price to consolidate and form the pennant.
The consolidation period represents a period of indecision in the market, where sellers and buyers are unsure of the direction of the trend.
As the pattern continues to form, sellers regain momentum and push the price lower again towards the previous low, and potentially beyond.
Once the price breaks out of the pennant, it’s a signal that the downtrend is likely to continue, and traders may enter short positions.
Encyclopedia of Chart Patterns (Wiley Trading)
19% OffHow To Trade The Bear Pennant Pattern?
To trade the Bear Pennant pattern, traders typically wait for the price to break out of the pennant with a strong volume surge.
The breakout should ideally occur on higher than average trading volume, as this confirms that there is significant selling pressure behind the move.
Traders may enter a short position once the price breaks out of the pennant, with a stop loss placed above the upper trendline of the pennant.
The profit target can be set based on the height of the flagpole, with the expectation that the price will move at least the same distance as the flagpole’s height in the direction of the breakout.
Alternatively, traders may wait for a pullback to the lower trendline of the pennant before entering a short position.
This approach can provide a better risk-to-reward ratio, as the entry price is closer to the higher risk resistance level.
However, it may also result in missing out on some of the initial gains from the breakout. Ultimately, the best approach will depend on the trader’s risk tolerance, trading style, and market conditions.
It’s worth noting that the bear pennant pattern can also result in a false breakout, where the price briefly breaks out of the pennant before reversing course.
Traders should be aware of this possibility. Also be sure to use technical indicators and other tools to confirm the validity of the breakout. Access these tools at TradingView.
Bear Pennant Performance Expectations Explained
Bear Pennants are usually expected to result in a bearish breakout from the bottom trendline.
You can get a potential target by taking a measurement from the previous breakout creating the flag pole, then projecting it from the bottom of the bear pennant.