The pennant pattern, as well as the flag pattern, is the signal of the trend’s continuation after the pause. By its look this pattern is in some way similar to the one sort of the triangle pattern which is called the symmetric triangle.
Peculiarities of Pennant chart pattern
One substantial difference from the similar pattern is the fact that the pennant’s formation time is significantly shorter than the triangle’s formation time. In addition, the pennant is somewhat similar to the flag pattern by its characteristics. It also proves that the main direction of the price’s movement continues.
Nevertheless, this pattern’s distinction from the flag is in the fact that the pennant’s local support and resistance levels don’t move parallel to each other, but meet at the same point. A pennant can be both the bullish (that is forming in the growing market) and bearish (its formation is occurring in the declining market).
It is also necessary to mention that the pennant pattern of the chart analysis has the small incline to the opposite side from the current trend. For this reason, you can determine further direction of the price’s movement if the so-called flagstaff, which is the trend that has preceded the pennant’s formation, is present.
The most important for a trader is to manage to correctly define which pattern is forming on a chart. This is because a pennant can be easily confused with a triangle. In order to avoid such situation, you have to pay attention to the flagstaff’s presence, as well as to the time taken by the price for the pattern’s formation.
How to use Pennant pattern in binary options trading?
When the pennant pattern is formed, the price usually breaks the resistance level (top line which is drawn on maximums), and the trend resumes. This chart’s pattern indicates the small respite that is taken by bulls (on the ascending trend) or bears (on the descending trend). This respite occurs due to the appearance of a balance between the amount of buyers and sellers, as well as to the fixation of deals. But you don’t have to forget that when this pattern works off, the price rushes further along the strike of the main trend, and it means that the period of the temporary price consolidation has expired.
If you use the Pennant binary options’ trading strategy in the growing market, it is recommended to buy the Call option at the time when the price on a chart overcomes the resistance line. Break of the top impulse’s border results in the strong impulse in the direction of the current trend. Work off of this pattern occurs when the price manages not only to break the top line of the pennant, but also settle over it. Otherwise, the other chart’s pattern formation, as well as the change of the general price’s direction, is possible.
As for application of the Pennant binary options’ trading strategy in the bearish market, it is recommended to buy the Put option at the time when the price overcomes the support level. After this, as well as in the pattern’s example in the bullish market, the price usually receives the strong impulse for the further movement down. As for work off of this pattern, it occurs when the price settles under the support level. It is very important to wait until this time to buy an option. This is because the breakout can be false, and the price will revert back and the pattern will not work off. In addition, there is the probability that the descending trend will shift to the ascending one.
This chart pattern can be formed on different time scales, so usage of this strategy can be both short-term and long-term.
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