CHART PATTERNS

Page 10

Rules for trading the pennants in the buy and sell zones:

  • Find and draw all trend-lines; inner, outer and long term as this will help you to determine if the market is in an uptrend, downtrend or if a trend-line has been broken signifying the potential end of a trend and reversal.

  • Draw your pennant trend-lines and determine what type of pennant you have.

  • Establish the buy and sell zones whilst becoming aware of the backside of the trend-line (potential resistance or support after the pennant breakout).

  • Whether it be diamond pennants, ascending pennants, descending pennants or flag pole pennants, the stop loss placement is the same for every one.

  • Diamond and flagpole pennants can breakout either side regardless of the previous trend.

  • Ascending pennants have a higher probability to breakout to the north whereas descending pennants have a higher probability to breakout to the south.

  • You will need to wait for the confirmation of a full bodied bullish/ bearish candle to form outside of the pennant. Your stop loss will need to be placed 10/ 15 PI Ps above/ below the last high.

  • If you cannot afford the stop loss, pass on the trade. Remember that the pennant pattern is nothing more than a form of consolidation. They often form before fundamental announcements.

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