The Definitive Guide to Trading the Bull Pennant Pattern

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The Definitive Guide to Trading the Bull Pennant Pattern


A Bull Pennant Strategy That Works In Trending and Ranging Markets

First of all, what are the different types of market conditions out there?

There are three types:

  1. Uptrend
  2. Range
  3. Downtrend

And they look something like this:

Bull Pennant

So how will you be able to take advantage and profit from these markets with the bull pennant?

Let me show you…

1. Uptrend

First, you need to know how to define an uptrend objectively.

Because if you can’t define a trend objectively, then your bull pennant setup will break down eventually.

So, how do we do it?

By using a trend filter such as the 50-period moving average:

Bull Pennant

So if the price is above the 50-period moving average?

We look for bull pennant opportunities.

If the price is below the 50-period moving average?

We avoid trading.

Now, what if an opportunity arises and we see a bull pennant?

We wait for the price to make a bullish candle close while placing your stop loss below the bull pennant pattern:

Bull Pennant

How do we take profits?

Simple, since we don’t know how long a trend lasts, you can use the 50-period moving average to trail your stop loss.

So we would only exit when the price closes below the 50-period moving average:

Bull Pennant

Not only do we use the 50-period moving average to filter trends, but also to take our profits.

That’s like hitting two birds with one stone!

2. Range

Since the bull pennant is a trend continuation pattern, it’s already given that these types of setup are unfavorable.

So, how exactly do we trade the range market?

Here’s the thing, we don’t.

What do I mean?

It means that instead of trying to buy the highs and lows within the range…

We wait for the range when it’s about to potentially end, such as looking for a bull pennant pattern forming at resistance:

Bull Pennant

If you see a bull pennant forming at resistance, it tells you that the buyers are starting to prevail and that an explosive breakout is imminent!

Now, since we anticipate a breakout of the range, there’s still no valid trend.

So just in case the price breaks out, use a tighter moving average period such as the 20-period moving average:

Bull Pennant

Makes sense?

3. Downtrend

You’re probably thinking:

“Wait a minute, you said that the bull pennant is a trend continuation pattern; why are we using this in a downtrend?”

Yes, the bull pennant is indeed a trend continuation pattern!

But what if I told you…

There’s a way we can profit from downtrends while still using the bull pennant as a trend continuation pattern?

It’s a simple method that’s broken down into two steps:

  1. The price must close above the trend line resistance
  2. The price must form a bull pennant above the trend line

Here’s what I mean:

Bull Pennant

Pretty cool, right?

What you’re doing here is trading between an ending downtrend and a potential starting uptrend!

Of course, you can use the bear pennant pattern (which is the opposite of the bull pennant) to trade with the trend.

Nonetheless…

Similar to the range market strategy, I still suggest you use a tight trailing stop loss such as the 20-period moving average:

Bull Pennant

Disclaimer

Now, as you’ve noticed…

All of the examples I’ve picked are winning trades to illustrate a trading concept…

But in the real world, there will be a lot of times where patterns will fail, and false breakouts will occur.

At the same time, I’m sure you’ve noticed that I kept these strategies as systematic and straightforward as much as possible.

Why?

The reason is that I want to give you the flexibility to tweak or add your own rules into these strategies because a strategy is only as strong as its user!

If you don’t “own” what you execute, you won’t find the confidence to use them consistently, and as you know…

The only way to achieve consistent results is with consistent actions.

Pretty powerful, right?

So backtest your bull pennant strategy and do the work!

With that said…

Let’s do a quick recap of what you’ve just learned today.





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