The Bear Pennant is easy to spot, but is it profitable?

The Bear Pennant Chart Pattern is not one of the more discussed chart patterns because it is not a pattern that is slow-developing, but rather it happens more frequently and it takes a much shorter time to develop.  Regardless, it is never a bad time to explain the Bear Pennant Chart Pattern and test how it has performed over the past two years.

What is the Bear Pennant Chart Pattern?

The Bear Pennant Pattern is supposed to be a bearish continuation pattern, which means that if the market is moving downward, a bear pennant would indicate that there is more bearish activity to come.  Naturally, it is an opportunity for traders to short a currency pair, CFD, commodity or any other type of traded instrument.

What does the Bear Pennant look like when it is actually on a chart?

The problem with the Bear Pennant Pattern is a matter of defining what it looks like as there are disagreements.  These disagreements involve the following issues:

1. How many periods does a Bear Pattern include?
2. How high can a Bear Pattern retrace after a downward movement?
3. Do wicks matter in terms of determining the trendlines?
4. How much of a bearish movement prior to the Bear Pattern deserves consideration?

It's a pattern and there are no rules set in stone.  It's rather subjective and there is no truly definitive answer.

A Bear Pennant simply has these characteristics:

• A sudden downward movement to precede the pennant.
• A triangular formation immediately after the downward movement with lower highs and higher lows.
• The price falls below the low trendline formed connecting the lows.

Backtesting the Bear Pennant Pattern with an Indicator

The testing conditions will involve this pattern being used with different timeframes used and different currency pairs.  All positions will be short positions.

Timeframes Used:  1 Hour, 4 Hour

Currency Pairs Used:  EURUSD, USDJPY, AUDUSD

Take Profit: Pennant low - ((Flagpole height) * 51%)

Stop Loss Criteria:  Pennant high

Time Period Tested:  July 1, 2016 through June 30, 2018

Bear Pennant Chart Pattern Backtests

4 Hour Chart – EURUSD

1 Hour Chart – EURUSD

4 Hour Chart – USDJPY

1 Hour Chart – USDJPY

4 Hour Chart – AUDUSD

1 Hour Chart – AUDUSD

Overall Takeaways on the Bear Pennant Chart Pattern

The results are mixed for the Bear Pennant Chart Pattern because it is not a sinkhole for money, but it is inadvisable to use the Bear Pennant Chart Pattern on its own at least for the 1 Hour and 4 Hour Charts.  There needs to be a multi-currency pair approach so that there are multiple trades placed, but there needs to be a filter on the trades to ensure better quality entries.  Better exits could be investigated as well with trailing stops to ensure greater profits.