Bear pennants are one of the most popular bearish patterns to be bearish on. They consist of either a large bearish candlestick or several smaller bearish candlesticks down, forming the flag pole, followed by several smaller bullish candlesticks forming consolidation into a triangle, which forms the pennant (triangle). Look for the price to fall out of the pennant to confirm a bearish breakdown.
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Bear Pennant Pattern Meaning
A bear pennant pattern consists of a larger bullish candlestick, which forms the flag pole. It’s then followed by several smaller consolidation candles that form a pennant. A common place to see this setup is during consolidation near resistance levels; once it rejects, price action breaks down out of the apex of the pennant, which can cause an increase in pressure to the downside from sellers and shorts.
Bear pennants are bearish continuation patterns; look for these price movements to show that the price wants to continue to decline.
Ideally, look for a bear pennant in strong or newly formed downtrends, typically after a major bearish breakdown, such as on a daily head and shoulders pattern.
This is an example of a bear pennant pattern. Notice the large orange bearish candlestick, which formed the flag pole. After the sharp price drop, there was a consolidation period of bullish and bearish candlesticks. This is what formed the pennant shape. Since this is a bearish pattern, traders take a short position once the price fails the pennant formation. They use a candlestick close above the pennant area if the price reverses as a stop.
Basics
Bearish candlesticks form the pole, followed by consolidation, then a fall downwards. Bear pennants are similar to bear flags.
Both have flag poles and consolidation forming the flag. A trader may reference a chart resembling a flag or a pennant. They have a similar shape and are easy to mix up; they could look like each other.
The pennant is more triangular in its consolidation phase, while the flag is more rectangular.
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Trend Lines
Bear pennant trend lines come together at a point during consolidation. Pennants are a classic setup for trading stock. They start with a big push in volume, forming the flagpole, with volume becoming steady during consolidation, coming to a point completing the pennant shape.
Ideally, the flag pole is long and strong, followed by a strong increase in selling volume to confirm the move down. The stronger the selling volume, the better. Be sure to observe what the volume bars and other technical tools tell regarding what to expect the pattern to do next.
When bear pennants are forming, sellers are in control. Consolidation occurs due to the two sides fighting to regain control. During consolidation periods, many candlesticks form, which could cause confusion, so be sure to wait for confirmation.
Bear Pennant Pattern Trading Strategy
- Watch for a bearish candlestick that forms a flag pole
- Look for several consolidation candles that form a pennant and hit resistance levels
- Once the price breaks down out of the apex of the pennant, take a short entry
- Watch if the price can break below the low of the flag pole
- Use a candlestick close above midway of the pennant as a stop
Bear Pennant Pattern Example
This is a chart example of TVIX using Trendspider. Take note of the prolonged downtrend on the chart. You’ll see several bear pennants on this chart. They often look like bear flag patterns. Once the price fails, the pennant area traders take a short position or trade options to the bearish side. TrendSpider is a great tool that can filter and look for bear pennants with their scanner.
This is a daily chart of $XNET. This was a long downtrend with several bear pennant formations on the chart. The first two were handle formations on a cup and handle, which failed. Typically, cups and handles are bullish, but these two examples show handle failure. It’s important to be aware of pattern failure and fakeouts. The last two examples were clean-looking pennants.
TrendSpider charting platform is awesome at finding candlestick patterns on various set ups and time frames.
Fakeout Example
The picture above shows a daily chart of $NFLX. This is an example of a bear pennant failure. The pattern also looks like a flag that’s bearish but they are showing the same signal. Flags and pennants often look the same. This bear pennant happened at the top of a rising wedge pattern, and that’s when it looked like there might be a further breakdown.
However, the pattern didn’t break down. It turned into a bullish breakout, and a bullish pennant formed, creating a large uptrend.
Final Thoughts: Bear Pennants
Many bear pennants form on daily charts, but also on all timeframes. This is why looking at the bigger overall pattern formations is important. They are a strong bearish pattern to be aware of as a trader. Even though there are fakeouts, this pattern is particularly strong during a prolonged downtrend, especially when falling wedge pattern formations occur.
Frequently Asked Questions
Pennants can be either bullish or bearish. A bull pennant starts with a bullish candlestick that forms flag pole and then consolidation forming a pennant. A bear pennant starts with a bearish candlestick that forms flag pole and then consolidation forming the pennant. You go long with a bull pennant and short with a bear pennant.
Unlike wedges, bullish flags have a lower top and lower bottom, and the pattern tends to follow the trend. Conversely, bearish flags have a higher top and higher bottom, and their trendlines follow the trend. Bear flags, on the other hand, tend to slope with the trend.
