Pennant and Wedge Patterns
Like triangles and rectangles, pennants and wedges are continuation patterns. They look like triangles, but much smaller. Pennants are sideways and horizontal, but wedges are either ascending or descending. This is the main difference they have. Like the triangles, there are bullish and bearish pennants and wedges.
Bullish and Bearish Pennants:
And this is how wedges look like:
Pennants and wedges are completely the same as the triangles in trading. Something you have to be careful about is that you should not rush and take a position as soon as you think that you have found a pennant or wedge. You have to wait for the market to develop a complete pennant or wedge. Then you should wait for the pennant or wedge resistance (in case of a bullish market) or support (in case of a bearish market) breakout to go long or short. Sometimes, pennants and wedges are tricky and you have to be careful about this.
This is an examples of a bullish pennant formed on EUR/USD daily chart. We could go long when the first candlestick closed above the resistance. We could place our stop loss below the candlestick that broke above the resistance. Our target could be at least X3 of our stop loss.
Bullish Pennant Formed on EUR/USD Daily Chart:
This is a wedge that is formed almost at the bottom of a bearish market, and it seems it has worked as a reversal pattern in this case. That is why I told you that you should not trade the patterns based on the rules, and you should always wait for support/resistance breakouts.
A Wedge Formed on EUR/USD Daily Chart:
This is the example of a bearish pennant. As the candlestick which has broken below the support line is relatively long, I would place my stop loss almost at the middle of this candlestick, not above it.
Bearish Pennant on EUR/USD Daily Chart:
And finally, a bullish wedge on GBP/USD daily chart:.
Bullish Wedge on GBP/USD Daily Chart: