ThinkingAntsOk

Understanding how to trade Pennant patterns / Real example

Education
NASDAQ:AMZN   AMAZON COM INC
Today we will show you the theory behind Pennant patterns and apply them to a real example.


CONTINUATION PATTERNS: Ralph Nelson Elliott (who created the Elliott Wave Theory) discovered that there are 4 types of patterns that the resolution of them tend to be in the same direction of the previous impulse once the correction is finished and we have a breakout.

-TRIANGLES
-IRREGULARS
-ZIG-ZAGS
-FLATS

Today we will learn about pennant patterns, which are a type of triangle. Pennant Patterns are made by 5 waves (abcde); you can draw that using the tools you have on trading view on "Patterns."

In general terms, you will be able to draw two converging lines, and the price will start compressing there. It's important to know which is the previous impulse of the pattern to draw the Fibo Extension using that previous impulse. The Fibo Extension will allow you to define targets and are extremely useful when you are at ATH because you can't rely on previous technical movements to define supports or resistances.

HOW TO TRADE THEM?

Entry-level: Always above/below B depending on the direction you are trading. In this case with AMZN , our confirmation level is above B
Stop Level: Always above/below A depending on the direction, you are trading. The easiest way to define your stop level is by setting it above/below the whole structure.
Break-Even level: If the price starts going in the expected direction, you can move your stop loss to your entry-level, once the price reaches the First Fibo Extension
Target: Use the last Fibo extension level. Your minimum risk rewards ratio should always be 1.5, never less than that.



Thanks for reading!
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Comments

nice explanation, I greatly appreciate
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great !!!!
Reply
@AmithS, Great usage of Elliott Wave Theory! We share your view mate. Thanks for sharing!
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Thanks for the explanation. To be clear, first green candle to close above B on shorter timeframe? Or first Daily candle to close above B? And should we be confirming with volume too?
Thanks.
Reply
ThinkingAntsOk columbiaaveart
@columbiaaveart, Hi, the way we trade it is by setting stop orders on the Entry level. IF the price reaches our green line, we enter automatically on the market. Regarding the Volume question, you can complement the chart pattern with it if you want extra confirmation (observing an increase of Volume on the breakout); however, you can only trade this type of pattern using the chart (that's the way we do it). Thank you very much!
Reply
Very nice explanations here mate.
Reply
ThinkingAntsOk DaweFXHunter
@DaweFXHunter, Thanks for appreciating the work! have a great day
Reply
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