Complex Chart Patterns
Complex Chart Patterns: pennants & triangles - text
Pennants are continuation patterns.
They are usually seen after a strong move upwards or downwards. Pennants show the market consolidating while buyers or sellers pause for a period before continuing on the overall trend.
The result is that the candlesticks form a symmetrical triangle which is called a pennant.
A bearish pennant is seen after a strong downward trend.
Here we see the sellers are in control of the market shown by the three strong red candlesticks. We then have a period where many sellers close out their positions and materialize their profit from this fall. This pushes the price slightly upwards and the chart flattens out. This forms our pennant formation. This period of consolidation lasts just a few hours before more sellers come back into the market and continue the downward trend.
A bullish pennant is simply the opposite of the bearish pennant where the period of consolidation only leads to more buyers coming into the market and pushing the price back up.
Triangle patterns form when we have a series of either higher lows hitting a resistance line or a series of lower highs hitting a support line.
When this happens either one of two things will happen.
We will either see the price break through the relevant line and we will see a continuation of the trend or it will bounce of the relevant live if it has proven difficult to break several times in the past and we will see a price reversal.
Triangles are therefore a neutral chart pattern as either scenario can occur so we must prepare ourselves for both possibilities.
Here we see an example of a triangle being formed and the price bouncing off our resistance level and reversing by over 150 pips.
That is why when a triangle like this is formed it is useful to have an entry order buy just above the resistance level to catch a breakout or have an entry order sell just below it to catch a reversal. More often than not we usually see the price reversal like we see in this example.
We can also see right angle triangles near levels of support. Again this can lead to a breakthrough this level or more often a reversal to the upside