Bullish Pennant Chart pattern indicator for NinjaTrader 8

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The Bullish Pennant is a powerful and highly reliable short-term continuation pattern. Its usefulness stems from its ability to identify a brief pause in a strong uptrend, signaling a high-probability opportunity for the rally to resume.

Think of it as a coiled spring: the market is gathering energy for its next powerful move up.

Here’s a detailed breakdown of why it's an invaluable tool for traders.

1. It Captures a Specific Market Psychology: Consolidation After an Explosion

The pattern tells a clear story about the battle between buyers and sellers:

• The Flagpole: A sharp, almost vertical price rally on very high volume. This represents a massive wave of buying urgency, often driven by a significant news event or a major shift in sentiment.

• The Pennant: A small, symmetrical consolidation with converging trendlines (forming a small triangle) that typically slopes slightly sideways or downward. Critically, volume contracts dramatically during this period.

  • Psychology: The powerful rally exhausts the initial buyers. The pause represents a moment of indecision where short-term traders take profits and new buyers are hesitant. The sharply declining volume shows that sellers lack conviction—this is not distribution, just rest.

• Why it's useful: It frames a pullback not as a reversal, but as a healthy and natural consolidation within a powerful trend. This prevents you from mistaking a normal pause for weakness and selling your position too early.

2. It Provides a Precise, Low-Risk Entry Signal

The entire purpose of identifying the pennant is to prepare for the continuation of the uptrend.

• The pattern is confirmed when the price breaks above the upper, descending trendline of the pennant on a significant surge in volume.

• Why it's useful: It offers a clear, objective, and low-risk entry point for a long trade. You are not guessing where the bounce will happen; you are entering on the confirmed resumption of momentum.

3. It Offers a Measured, High-Probability Price Target

This is a critical feature. The Bullish Pennant provides a logical and quantifiable profit-taking target.

• How it works: You measure the height of the initial flagpole (the impulsive rally). This same distance is then projected upward from the point of the breakout.

• Why it's useful: It allows you to calculate the potential reward before you enter the trade. This is essential for determining if the trade offers a favorable risk-to-reward ratio and for managing your position effectively.

Visual Example:
(Imagine a chart showing a sharp rally from $50 to $70 on high volume (flagpole). This is followed by a tightening, triangular consolidation between $67 and $69 (pennant). The breakout occurs at $69.50, and the $20 height of the flagpole is projected upward, giving a target of ~$89.50.)

4. It Enables Superior Risk Management

The pattern’s well-defined structure provides a logical and tight level for a stop-loss order.

• How it works: The most logical place for a stop-loss is just below the lower trendline of the pennant. Since the pattern is a continuation signal, a move back below the pennant invalidates the setup.

• Why it's useful: Because the pennant is a small, tight consolidation, the distance to this stop-loss level is small. This creates the potential for an excellent risk-to-reward ratio. You are risking a small amount to gain a much larger amount (the height of the flagpole).

Practical Trading Example

Let's walk through a hypothetical trade:

1. Identify the Pattern:

   • Flagpole: Stock XYZ surges from $100 to $120 on massive volume (a $20 move).

   • Pennant: Over the next several days, the price oscillates in a tightening range between $118 and $119.50, with the highs getting lower and the lows getting higher, forming a small triangle. Volume contracts dramatically.

2. Entry & Risk Management:

   • Entry Signal: The price breaks above the pennant's resistance at $119.60 on a surge in volume. You enter a long position at $120.

   • Stop-Loss: You place your stop-loss order at $117.90, just below the lowest point of the pennant formation. Your total risk per share is $2.10.

3. Profit Target:

   • Measuring the Pole: The pole was $20 tall ($120 - $100).

   • Setting the Target: You project this $20 upward from the breakout point (~$119.60). Your price target is $139.60.

   • Your potential profit per share is $19.60 ($139.60 - $120).

4. Reward-to-Risk Analysis:

   • Potential Reward: $19.60

   • Potential Risk: $2.10

   • This is a 9.3:1 reward-to-risk ratio. This exceptional ratio is what makes the pattern so highly sought after.

Bullish Pennant vs. Bullish Flag

It's important to distinguish this from the very similar Bullish Flag pattern:

• Pennant: Uses two converging trendlines to form a small triangle. The consolidation is more symmetric.

• Flag: Uses two parallel trendlines to form a small channel or rectangle that slopes downward.
  Both are continuation patterns with nearly identical psychology and measuring techniques.

Crucial Limitations and Tips for Use

• Volume is CRITICAL: The pattern's reliability is heavily dependent on volume confirmation.

  • Flagpole: Very high volume.

  • Pennant: Noticeably declining volume.

  • Breakout: A decisive increase in volume. A low-volume breakout is a major red flag and suggests a lack of buyer commitment.

• Duration: Pennants are short-term patterns, typically lasting from 1 to 4 weeks. A consolidation lasting longer may turn into a different pattern (e.g., a symmetrical triangle).

• False Breakouts: The price may fake a breakout and then reverse sharply (a "bull trap"). This is why a stop-loss is mandatory.

• Overall Trend: For highest reliability, the pattern should occur within a larger, pre-existing uptrend. It is a continuation pattern, not a reversal pattern.

Summary: Why the Bullish Pennant is Useful

In essence, the Bullish Pennant is useful because it provides a complete, high-probability trade blueprint:

• Narrative: It explains the psychology of a buying panic, a pause, and a resumption of buying.

• Signal: A precise breakout level for entry.

• Target: A measurable profit objective.

• Risk Management: A logical and tight stop-loss level.

It allows traders to confidently enter a strong trend after a pause, with a clearly defined risk and a high potential reward, making it a cornerstone of technical analysis for swing and position traders.
 

This indicator will automatically detect Bullish Pennant  chart pattern.

It will draw two trend lines of the Bullish Pennant  on chart when the pattern is formed.



Features:

1.     Drawing Bullish Pennant  chart pattern for both real-time and historical data.
2.     Adjustable length of pattern legs.
3.     Using different combination of parameters, you can easily identify the Bullish Pennant  pattern in short term, midterm and long term.
4.     It works on most of the time frames and chart types, including: minutes, daily, weekly, monthly, tick, renko, range, Heiken Ashi, etc.
5.     Adjustable length of extension lines.
6.     Switch for showing the latest pattern only or show all history patterns found on chart.
7.     Select different sound alert files with switch.
8.     Editable trend line color.

There is a plot that can be used from other NinjaScript, such as Strategy and Market Analyzer.
They will show up on current bar, no delay, no repaint or back-paint.

In default, the color is transparent, if you need to see the plots on the chart, just change its color to your desired ones.




Click an image to view at full size.