Pennants on the Dow Jones and USDJPY this week lead to some really good moves. A pennant formation is directly related to price action. When a pennant formation occurs, the high or low of the pennant will be tested and then a breakout will generally occur.
Pennants on Dow Jones and USDJPY
The Dow Jones 180-minute chart formed two pennants earlier in the week. Each time the low of the pennant was tested and a reversal bar to the upside was formed. Then the 45-minute chart began forming and again the low was tested with a reversal bar to the upside forming. After the last high was made pennants began forming again and this time the high line of the pennant was tested and reversal bars to the downside were formed.
On the USDJPY 60-minute chart pennants also formed. The first set of pennants indicated a downward movment and the high line was tested, with a reversal bar to the downside. Then an ascending pennant formed, complete with reversal bar, but the ATR stop (plus sign) stopped price from moving up and a down movement followed.
Since I trade price action, any type of price pattern indicator can help me identify when these formations occur — like the pennant formation indicator. The TradeStation RadarScreen and Multicharts Scanner can monitor these formations on multiple instruments and multiple timeframes allowing identification of an upcoming breakout. Of course, after the formation, we can use divergence, Stochastics overbought or oversold theories and volume to identify the direction of the move.
I will be developing more price pattern formations in the months ahead so stay tuned.