If your question is, what is the difference of Pennant and Wedge chart patterns, then I answer you here at the beginning of this article. However, make sure to read the rest of this article because knowing the difference between Pennant and Wedge doesn’t help you to make money as a Forex or stock trader. You can see the difference between Pennant and Wedge on the above diagram. Their difference is that Pennants are horizontal, but Wedges are either ascending or descending. That’s their main difference. These two patterns are like the Symmetrical Triangle pattern, but they are much smaller.
Now you know the difference between Pennants and Wedges. But does this help you to become a better trader? Experience shows that the answer is no. Only novice traders are usually curious about different chart patterns and their differences because they think that they must learn these things if they want to become good traders. They eagerly learn about different chart patterns, their names and different kinds, and also the different rules that can be found in many articles on the Internet. I was used to doing this too. However, I came to this conclusion that although chart patterns form on price charts, taking proper positions has a different story and has nothing to do with chart patterns. You are lucky that you are here because you won’t make the same mistake. So, make sure to read this short article to the end.
Are Wedge and Pennant Reversal or Continuation Patterns?
Pennant and Wedge are known as continuation chart patterns. It means, if they form at the top of an uptrend or bottom of a downtrend, the trend will usually be continued after the Pennant or Wedge chart patterns. When they form at the top of a bull market, then the price usually breaks above the pattern’s resistance and will keep on going up, and vice versa when they form at the bottom of a bear market. These are known as the rules of trading Pennant and Wedge chart patterns. However, the question is, do the markets always behave according to these rules? The answer is no. Those who trade based on these rules are among the traders who lose a lot.
As a trader, you should not wait for these patterns to form on the charts. You should locate strong and valid support and resistance lines and wait for their breakouts. Sometimes, the support and resistance lines that you plot on the charts form patterns like Rectangle, Triangle, Pennant, Wedge, Flag, Butterfly, Bat, etc. patterns. But it doesn’t matter what kind of chart patterns appear on the charts after plotting the support and resistance lines. Something that matters is having valid support and resistance lines plotted on the charts and following their breakouts.
So, don’t be after locating Pennants or Wedges. If you have located a chart pattern that looks like a Pennant or Wedge, don’t spend your time to know which one it is and what the difference of a Pennant and Wedge is. You analyze the charts to trade and make money, right? Then, forget about the chart patterns. Learn how to get in the markets in the best and most optimum time, which is based on the price reaction to the support and resistance lines that may form a Pennant or Wedge, or may form no chart pattern. As long as they are valid support and resistance lines and the price reacts to them, you can trade based on their breakouts.
Now, I give you some good examples to show you how you can trade using the breakouts and while chart patterns like Pennants and Wedges form.
Wedge and Pennant As Continuation Patterns
In the below chart, you can see a Pennant and a Wedge next to each other. The first one at the left is a Pennant and the other one is a wedge. Both of them are formed on a bull market. The big green arrows show the upward bullish movements. A wedge and Pennant form in the middle of the way, and the price keeps on going up after the pattern’s resistance becomes broken. This is where you can learn your important lesson:
It doesn’t matter whether patterns that have formed are Pennants, Wedges or any other patterns. Something that is important is that their resistance was broken and the price went up after that. Therefore, you don’t have to learn the difference of Pennant and Wedge patterns. You don’t even have to learn the name of patterns. You just need to learn how to plot the support and resistance lines on the charts and wait for their breakouts to get in the markets. When a candlestick closes above a resistance, or below a support, it is broken and you can get in the market. You can set the stop loss, a little below the low price of the candlestick that has broken above the resistance, and a little above the high price of the candlestick that has broken below the support. It is as easy as this:
Resistance Breakout in Pennant and Wedge
Now let’s take a closer look at the Pennant and Wedge patterns you saw in the above screenshot, to see how you can trade their resistance breakout.
With the Pennant which is at the left, the resistance was broken by a long candlestick. Having the breakout with a long candlestick usually makes me stay away from the trade setup because my stop loss has to be wider than usual. However, this is still a resistance breakout and long trade setup that works and makes profit without hitting the stop loss.
The resistance of the Wedge that is at the right was broken by three candlesticks, but it was violated during retesting. As you know, when a resistance becomes broken, it will work as a support, and so it doesn’t let the price go down during retesting. However, sometimes retesting is not precise and exact and some candlesticks can barely close below the broken resistance line. This is something that you can see with the Wedge in the chart below. This has nothing to do with the difference of Pennant and Wedge as two different chart patterns. It is related to resistance breakout and retesting.
As you have seen so far, you don’t have to learn about the patterns like Pennant and Wedge and their differences. You just need to know how to locate and plot support and resistance lines on the charts, and wait for their breakouts, no matter what kind of chart pattern the support and resistance lines you plot on the chart may form.
Can Pennant and Wedge Work as Reversal Patterns?
This is exactly where the so-called rules don’t work. Those traders who memorize the rules and want to implement them in their trading are the ones who lose before they learn that markets don’t pay any attention to the rules. For example, everybody says that Pennants and Wedges are continuation patterns. But as you can see in the chart below, a Wedge has worked as a reversal chart pattern. So, the rules are not always correct. They may or may not be correct. What you must note is that it is not the chart pattern that determines the direction of the market. Pennant or Wedge don’t tell the market to go up or down. It means, once you see one of these patterns on a chart, you should not come to this conclusion that the price wants to go up or down. You must wait for a support or resistance breakout to get in the market:
There are two Pennants in the chart below. The first one has worked as a reversal, and the second one as a continuation pattern. Again, here you can see that the same chart pattern can work both as a reversal and continuation pattern, which means you shouldn’t trade based on the rules. Another thing that is proven here in this example is that although the support and resistance lines I have plotted on the chart below have formed a Pennant chart pattern, it is the breakout that we must pay attention to, not the pattern shape or name:
So, you learned an important lesson from the above examples: Support and resistance lines can form any kind of chart patterns like Pennants and Wedges. However, you should get in after the breakouts, no matter what kind of chart pattern you have located on the chart. This is how professional Forex and stock traders trade. Novice traders try to memorize the names, shapes and rules of different chart patterns, and this causes them to lose. If you are new to chart analysis, make sure to read this article as well.