When you are doing FX, the chart that has been moving violently will become more and more quiet, and it will converge and become a range market. This is called a pennant.
What is a pennant?
A pennant is a form in which the fluctuations in the exchange rate gradually decrease, eventually converge, and become a range. This is a process in which the violently moving market starts to get tired and becomes more and more calm, accumulating energy for the next trend. In this case, in most cases, the trend does not occur for a while and becomes a range.
How did you come up with a sample chart? Below is the Australian Dollar/Swiss Franc hourly chart. Although the rapid upward trend continued, it can be seen that the tired market is steadily converging and becoming a range market. This is the timing of accumulation before the next trend is born, so even if you enter here, it will not become a trend.
Source : Tradingview
When and where do these shapes emerge? is difficult to know in advance. However, as a trend, it can be said with certainty that this shape is often the case when a strong trend continues for a long time. The market does not always trend violently. This is because 80% of the exchange rate is said to be in a range.
So what traders are curious about is how the market will move after this convergence? That means. One is up, the second is down, and the third is the continuation of the range. If it is a continuation of the range, there is no choice but to leave it alone, but in the case of the pennant, it is said that the next trend is likely to emerge, so it is a common way to fight when it reaches the range. However, the pennant has many tricks.
Source : Tradingview
It is said that when it comes to pennants, there are many cases where the trend before this shape was formed on the chart continues. In the above chart, it is an upward trend, so it seems to be a theory that it will rise again. A pennant often refers to a short break during the previous trend, and it is a time to accumulate for the next trend, but the reality is that there are many cases that do not follow the theory. The market price rarely moves beautifully, and the reality is that it is full of fakes.
Pennant trick signal
The pennant’s false signal, in the chart above, is that it repeatedly appears to be on the rise, but with a top mustache. This is a sign that you want to move up, but you really can’t. By having a top mustache repeatedly, the number of entries to sell increases, and a crash occurs. If this becomes full of underbeards, there is a strong tendency for an uptrend to occur. The essence of the market is to deceive the public and reveal the true direction. That’s why it’s said to be a market that can only win 1 %.
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