Before reading this lesson, you should have previously read through:

A bullish pennant is the exact opposite of a bearish penant.

It is a continuation pattern that marks a pause in the movement of a price halfway through a strong uptrend, giving you an opportunity to go long and profit from the rest of the price rise.

A bullish pennant marks a pause in a price's movement, halfway down a strong uptrend. It gives you the chance to make a long trade, hopefully profiting from a second big price rise.

Bullish pennants occur just after a sharp rise in price and resemble a triangular flag as the price moves sideways, making gradually lower highs and higher lows. The uptrend then continues with another similar-sized rise in price.

This lesson will show you how to identify the bullish pennant and look at ways you can use it to profit from the second half of a strong uptrend.

How to identify a bullish pennant

See the charts below to see what a bullish pennant looks like:

Bullish pennant 2
number_1 Pole of the pattern

As shown above, before the flag-like pennant forms, the price experiences a sharp rise. This is known as the pennant's 'pole'.

The pole can represent either the start or the continuation of an uptrend and its size is important when you are calculating where to place the profit target for your buy trade.

The triangular pennant itself is usually very small in relation to the size of the overall uptrend so this pattern can be hard to spot. With practice however, you will learn when to look out for it and how to recognise it.

See if you can identify bullish pennants in the two exercises below:

How to trade the bullish pennant: method 1

We will now show you two methods how to trade the bullish pennant.

Enter your trade

Enter your long trade as soon as a candlestick has closed above the pennant's upper trend line.

See the chart below for an example of this:

Bullish pennant method 1 entry

number_1 Pole of the pattern
el1 Buy order (long entry)

Place your stop loss

Place your stop loss on the other side of the pennant, just below its lower trend line.

See the chart below for an example of this:

Bullish pennant method 1 stop loss

number_1 Pole of the pattern
el1 Buy order (long entry)
sl2 Stop loss

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Place your profit target

Measure the initial rise in price (the pennant's pole) before the market started to consolidate.

Then place your profit target the same distance above the pennant's breakout point.

If, for example, the initial price rise was 50 pips in size, you should place your profit target 50 pips above your trade entry.

See the chart below for an example of this:

Bullish pennant method 1 take profit

number_1 Pole of the pattern
number_2 Profit target distance (same height as the pole number_1)
el1 Buy order (long entry)
sl2 Stop loss
tp3 Take profit

Try the exercise below to practice placing your trade's entry, stop loss and profit target under method 1:

Exercise 1: Where would you place the entry, stop loss and take profit? Show exercise

How to trade the bullish pennant: method 2

We will now show you a second method of trading the bullish pennant.

Enter your trade

As with method 1, wait for the price to rise above the pennant's upper trend line. Once this resistance has broken, place a buy order as soon as the price retests that trend line – the broken resistance will now become a support level.

See the chart below for an example of this:

Bullish pennant method 2 entry

number_1 Pole of the pattern
number_2 Area where the resistance line has turned into support
el1 Buy order (long entry), after the price has bounced off the trend line

Place your stop loss

Place your stop loss below the new support area.

See the chart below for an example of this:

Bullish pennant method 2 stop loss

number_1 Pole of the pattern
number_2 Area where the resistance line has turned into support
el1 Buy order (long entry), after the price has bounced off the trend line
sl2 Stop loss underneath the new support area

Place your profit target

As with method 1, measure the size of the pennant's pole.

Then place your profit target an equal distance above the pennant's breakout (where you entered the trade).

See the chart below for an example of this:

Bullish pennant method 2 take profit

number_1 Pole of the pattern
number_2 Area where the resistance line has turned into support
number_3 Take profit distance (same height as pole number_1)
el1 Long entry, after the price has bounced off the trend line
sl2 Stop loss underneath the new support area
tp3 Take profit level

Try the exercise below to practice placing your trade's entry, stop loss and profit target under method 2:

Exercise 1: Where would you place the entry, stop loss and take profit? Show exercise

Summary

In this lesson you have learned that ...

  • … the bullish pennant is a continuation pattern found in an uptrend – it alerts you to possible buying opportunities.
  • … entry (buy order) takes place after the resistance level has been broken, either on a breakout or on a retest of the pennant's upper trend line.
  • … the stop loss is placed below the opposite trend line.
  • … the profit target is placed the same distance above your entry point as the height of the pole (the initial price rise).

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  • Hello,
    Why is option 2 a correct answer to the question 5 in the Quiz? I think the correct answer is option 1 as it corresponds to the new resistance line.
    Thank you.
  • Hi ForestGump,
    In the case of method II, the lesson says "Place your stop loss below the new support area."

    At 1 there is no support if you examine the candles closer.
    2 resembles the examples brought in this lesson, please scroll up.

    Hope that helps. Let me know if anything is still unclear.
    Regards.
    Peter
  • I think I understand what you mean.
    There are two 1s, one of these relates to the entry level and I mixed it up twice with the 1 that relates to the stop-loss! Shame on me...
    Thank you Peter.
  • Hi..
    How many candlesticks should at least consolidate, making those lower highs and higher lows before a breakout?
  • Hi..
    How many candlesticks should at least consolidate, making those lower highs and higher lows before a breakout?
  • Hi..
    How many candlesticks should at least consolidate, making those lower highs and higher lows before a breakout?
  • Hi..
    How many candlesticks should at least consolidate, making those lower highs and higher lows before a breakout?
  • Trading Experte, u.a. verantwortlich für Tradimo Premium
    Hi Kgomotso Mpye,

    I would say at least 6, but there is no clear rule for it.

    Best regards
    nleeson111

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