Pennants
It is a pattern formed by an uptrend line and a downtrend line and it is considered a continuation pattern. There are two types of pennants, bullish pennants, and bearish pennants.
If the pennant appears after an uptrend as shown in the picture to the left it is called a bullish. If there is a downtrend then it is a bearish pennant. For the bearish pennant, we expect a breakout of the downtrend line as shown in the image. This is because the bullish pennant formed after an increase in buyers. It is the opposite of the bearish pennant.
But that is not always the case, the breakout of the pennant can happen in either direction. It is always a good idea to wait till the breakout happens to enter a trade. The example below shows a pennant breakout.
Wedges
There are 2 types of wedges. They are a rising wedge and a falling wedge. There are 4 scenarios for the wedge pattern. You can have a rising wedge after an uptrend or a downtrend. And a falling wedge after an uptrend or a downtrend.
Rising/Falling Wedges
The pictures to the top show a falling wedge after an uptrend or a downtrend. Two lines form a wedge-like pattern. There is a breakout at the end of the pattern. Usually, a trader would enter the trade at the beginning of the breakout.
If you see any of the falling/rising wedge patterns above, you can expect a breakout usually in the direction of the trend. We recommend you wait for the breakout to happen and trade in that direction. You can also look for other candlestick patterns at the end of the wedge to further confirm your trade entry point.
The chart above shows a falling wedge after a downtrend. You can see a breakout upwards. The breakout is also followed by a bullish engulfing pattern.
The chart below shows a rising wedge breakout. A trade could be taken after the breakout as shown below. Take profit based on your risk-to-reward ratio (2:1 or 3:1).
Triangles
- Symmetrical Triangle
- Ascending Triangle
- Descending Triangle
Symmetrical Triangle
The symmetrical triangle is formed by an uptrend line and a downtrend line. Usually, the triangle pattern is a continuation pattern.
This means, that if the market is in a downtrend you will take a short position and if the market is in an uptrend you will take a long position.
The chart below shows a trade taken using a symmetrical triangle. Before the formation of the triangle, the market was in a downtrend, therefore we expected a breakout downwards at the end of the triangle.
Ascending Triangle
The ascending triangle is formed by an uptrend line and a horizontal line. Usually, the triangle pattern is a continuation pattern, but it is not always the case.
But there will always be a breakout at the end of the triangle. In most cases it will be upward but not all the time. We recommend you wait for it to break out before placing an order.
Descending Triangle
The descending triangle is formed by a downtrend line and a horizontal line. Usually, this triangle pattern is also a continuation pattern, but it is not always the case.
But there will always be a breakout at the end of the triangle. In most cases it will be downward but not all the time. We recommend you wait for it to break out before placing an order.
The chart above shows an ascending triangle formation after an uptrend. In this case, the trend breaks out downwards. This is a good point to enter a short position in the market.