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The Bearish Pennant Chart Pattern Forex Trading strategy is a really good price action trading system that as a forex trader, you should have in your trading arsenal.
Different trading setups and situations on your charts call for different trading systems to be used and if a bearish pennant chart forms, then you can use this trading system.
The bearish pennant chart pattern forex trading strategy is a complete opposite of the bullish pennant chart pattern forex trading strategy.
you use the bearish pennant trading in a downtrend and you use a bullish pennant chart pattern system in an uptrend.
So what is Bearish Pennant Chart Pattern then? What does it look like?
Here’s a bit of introduction…
The Anatomy of The Bearish Pennant Chart Pattern
You should expect to see bearish pennant chart patterns form in a downtrend.
Here’s what happens:
- a downtrend starts and price starts falling
- after some time, price will slow down, and consolidate and it is during this time, bearish pennant chart patterns can form.
- the 3 important parts of the bearish pennant chart pattern are the flag pole, the height of flag pole and the price target. The chart below shows these:
Here’s what a real life bearish pennant chart pattern looks like:
How To Trade The Bearish Pennant Chart Pattern
There are two ways of options where you can trade the bearish pennant chart pattern:
Option 1: Trade the breakout of the lowest point of the pattern as shown by 1, on the chart below.
Option 2: trade the breakout candlestick as shown by 2 on the chart below.
Stop loss can be placed at either 3 or 4 as shown below.
I will go into detail about Option 1:
- place a pending sell stop order 2 pips below the lowest point in the pattern.
- place your stop loss 5-10 pips above point 3
- for take profit target, use the height of the flag pole to calculate it or use risk:reward of 1:3 or use a previous swing low level.
Here’s Option 2:
- place a pending sell stop order 2 pips below the low of the breakout candlestick
- place stop loss 5-10 pips above the high of the breakout candlestick
- the take profit calculations would be the same as those of option 1.
Advantages of The Bearish Pennant Chart Pattern Forex Trading Strategy
- the risk:reward are good for this trading system if your trade works out as anticipated.
- the trading rules are simple and easy to execute.
Disadvantages of The Bearish Pennant Chart Pattern Forex Trading Strategy
- new forex traders may at first have difficulty identifying the bearish pennant pattern because sometimes they can be so subtle and it can be really hard to see unless you are really looking for it.
- if the breakout candlestick is too long, your stop loss distance is also going to be large so you should avoid trading such
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