The pennant pattern is a trend continuation pattern formed during a strong up and down price wave. In this article, we will learn a trading strategy that is based on pennant signals for trend trading.

The picture below is a description of the bunting flag pattern:

There are two patterns of bunting flags, the bullish flag pattern and the bearish flag pattern. As shown above, is a bullish muscle pattern formed after a strong uptrend. The bearish flag pattern was formed after a strong downtrend. As shown below:

When the price breaks the flag pattern we will trade in the direction of the previous trend. However, to trade effectively with the pennant pattern, it should be combined with other technical indicators. In our strategy today, we need to use more Parabolic Sar indicators and incorporate price action analysis to be able to trade this pattern more effectively.

Additional note: this strategy can be of any timeframe. However, in this article, we focus on the M15 or M30 framework.

Step 1: install the PSAR indicator on the price chart

The Parabolic SAR indicator will let you know the main trend of the market.

Step 2: Find a strong bullish or bearish trend

Step 3 Analyze accumulation after price volatility

After the price has risen sharply for a while, the price starts showing signs of buyers exiting the market and taking profits. At the time of accumulation, buyers and sellers struggle for a period of time before the price resumes its trend.

Step 4: Determine the bunting flag pattern

Consists of 2 steps:
  • Draw a path to the upside of the previous bull run.
  • Draw a trend line connecting the bottom of the accumulation period. We will have a triangular pattern. When the price exits from this pattern, we will time the order.
Step 5: Breakdown

As the bullish flag pattern continues the trend, we need a breakout next to the name of the trend line in the accumulation zone. As shown below:

A series of at least three to five consecutive bullish or bearish candles without a recovery wave will be strong bullish or bearish movements. As shown below:

If the price breaks below the flag pattern, we will not enter a trade.

Step 6: Enter the buy order according to the pennant pattern

After the pennant has broken out of the candle, we enter the next candle. As shown below:

Another price area where you can place a trade is when the price's top is at a signal. You just need to draw a horizontal line identifying the top of the flag pattern, when the price breaks with this level you can enter, as shown below:

Stop loss and take profit

To place a stop-loss order, identify the nearest support/resistance zone and place it below it in a buy trade or above it in a sell trade.

To take profit, you should exit when the price action enters the next accumulation stage, while the PSAR indicator forms consecutive dots (about 5 dots) above the chart but quickly approaches the price. , shows that the uptrend is coming to an end.

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