Hi everyone.
The US Dollar fell sharply yesterday following Ben Bernanke’s statement.
This has left a number of Pennant style patterns in dollar related charts. Two examples are EUR:USD and Gold as shown in the charts below.
As I draft this post price is breaking through the top of the EURUSD pattern and gold is flirting with the resistance line
EURUSD 1 Hour. Source CMC Tracker"
Gold 1 Hour. Source: CMC Tracker Platform
Pennants are one of the classic continuation patterns. A typical entry is to buy on a break through the top of the pattern where an uptrend leads into the pattern.
A standard approach to profit objectives is to project the length of the “flagpole” leading into the pennant from the support line below the break point. I have demonstrated this projection on the zoomed out chart below
EURUSD 1 Hour. Source CMC Tracker Platform
The initial stop loss is often placed just below the pennant support. Another strategy could be to begin a one candle trailing stop loss once price hits 61.8% of the distance to the target
Cheers
Ric
If the candle triggers the “stop” does this mean that the pennant setup is invalid?
Hi Phil,
Yes I would regard it as invalid now. Of course that doesn’t necessarily mean that the market won’t rally from here. However, a break back below the pennant support is generally looked upon as a clear failure warning. In fact the whole formation is now starting to get the early look of a possible head and shoulder top formation I reckon
Cheers
Ric
Thanks