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Six Flag & Pennant Chart Patterns for End of Year Trading

December 20, 2020 (Last updated on January 13, 2021) by

Not one but six chart patterns are now ready to be traded in major and minor Forex pairs. Although they all are flag and pennant patterns, they provide trading setups on different currency pairs and different timeframes. And due to the fact that some of the pairs are correlated, it also offers a choice regarding which specific trades to take as I don’t recommend taking all six of them even if all six end up breaking out perfectly.

I will trade these patterns a bit differently from how I have traded them before (my most recent pennant trade had been executed back in 2019). I will use a successful candle close well above/below the consolidation area’s farthest border as my entry signal. This means that I will have to enter using a market order rather than a pending order to execute trades. I will set my stop-loss to the minimum/maximum of the consolidation area, and my take-profit to the pole length applied to the edge of the consolidation area at breakout. Both will remain fixed in time.

It is important to recollect that flags and pennants are all continuation patterns. And only upward breakouts from the bullish instances and downward breakouts from the bearish instances are to be traded.

On the chart screenshots below, you will see the yellow lines marking the patterns themselves — the poles and the consolidation areas’ borders. Stop-loss levels are marked with red horizontal lines. Take-profit levels are shown with green horizontal lines.

GBP/USD — Bullish Flag

This pattern will probably be the first to break out due to it being on the 4-hour chart. Although, I don’t consider H4 chart patterns to be very reliable, this one promises a risk-to-reward ratio of about 18, which is very nice.

GBP/USD - Bullish Flag Pattern on 4-Hour Chart as of 2020-12-20

Download a chart template for MetaTrader 4 for this GBP/USD pattern.

Update 2020-12-21 10:18 GMT: I have canceled this setup as the currency pair broke out to the downside, invaliding the bullish flag:

GBP/USD - Bullish Flag Pattern on 4-Hour Chart as of 2020-12-21 - Post-Cancellation Screenshot

EUR/JPY — Bullish Flag

The breakout, albeit a non-qualifying one, has already happened here, but we must wait for a candle close at least a little higher than that to consider it worthy of trading.

EUR/JPY - Bullish Flag Pattern on Daily Chart as of 2020-12-20

Download a chart template for MetaTrader 4 for this EUR/JPY pattern.

Update 2020-12-29 9:43 GMT: Unfortunately, I was a bit late with the entry here, having missed the daily close time, but I have decided to enter the trade anyway as the risk-to-reward ratio is still not bad. Buy trade opened at 126.916 with stop-loss at 125.694 and take-profit at 129.257 at 9:27 GMT:

EUR/JPY - Bullish Flag Pattern on Daily Chart as of 2020-12-29 - Post-Entry Screenshot

Update 2021-01-13 10:41 GMT: I had to close this trade at a moderate loss (126.516) just a few minutes ago as it seems that the flag pattern is no longer active here:

EUR/JPY - Bullish Flag Pattern on Daily Chart as of 2021-01-13 - Post-Exit Screenshot

EUR/AUD — Bearish PennantFlag

This bearish pennant is pretty straightforward but it has already had one fake breakout, so this should be traded carefully.

EUR/AUD - Bearish Pennant Pattern on Daily Chart as of 2020-12-20

Download a chart template for MetaTrader 4 for this EUR/AUD pattern.

Update 2020-12-28 9:38 GMT: The pattern has transformed from a bearish pennant into a bearish flag now. The breakout in the form of a definite close below the lower border has also occurred (on December 24). I have used the ensuing pullback to open a short position with a better risk-to-reward ratio. I have entered the sell trade at 1.60811 at 9:18 GMT today with stop-loss at 1.62560 and take-profit at 1.58642:

EUR/AUD - Bearish Flag Pattern on Daily Chart as of 2020-12-28 - Post-Entry Screenshot

Update 2020-12-31 12:34 GMT: Three days later, the currency pair hits my take-profit at 1.58642:

EUR/AUD - Bearish Flag Pattern on Daily Chart as of 2020-12-31 - Post-Exit Screenshot

NZD/JPY — Bullish PennantFlag

This bullish pennant is kind of abnormal with the consolidation part spanning for so many days. I would advise exercising great caution when trading this pattern (check if the R:R ratio is worth it).

NZD/JPY - Bullish Pennant Pattern on Daily Chart as of 2020-12-20

Download a chart template for MetaTrader 4 for this NZD/JPY pattern.

Update 2020-12-31 11:18 GMT: The pattern had morphed into a bullish flag, then it broke out. Unfortunately, the resulting risk-to-reward ratio is too low (less than 0.4) to warrant an entry here, so I am canceling the setup:

NZD/JPY - Bullish Flag Pattern on Daily Chart as of 2020-12-31 - Post-Cancellation Screenshot

EUR/NZD — Bearish Pennant

This euro pair pennant looks much better than the EUR/AUD one. It is also on a weekly timeframe, which means you will have a lot of time to react to a breakout and to consider whether or not this trade is actually worth taking.

EUR/NZD - Bearish Pennant Pattern on Weekly Chart as of 2020-12-20

Download a chart template for MetaTrader 4 for this EUR/NZD pattern.

Update 2021-01-04 14:13 GMT: As the breakout had been finalized with the last week’s close, I’ve entered a short trade at 1.70070 at 22:46 GMT yesterday. The stop-loss is set to 1.73463 and the take-profit is at 1.62714. The risk-to-reward ratio is very good, but the post-breakout price action doesn’t look too bearish:

EUR/NZD - Bearish Pennant Pattern on Weekly Chart as of 2021-01-04 - Post-Entry Screenshot

CHF/JPY — Bullish Flag

This pattern is one of the best examples of a flag formation — with good proportions of the pole and the consolidation zone. The only potential problem here is that the bullishness of the preceding trend is established rather poorly. Anyway, the risk-to-reward ratio of it should make the pattern worth trading anyway.

CHF/JPY - Bullish Flag Pattern on Daily Chart as of 2020-12-20

Download a chart template for MetaTrader 4 for this CHF/JPY pattern.

Update 2020-12-29 9:43 GMT: This one was entered later than would had been perfect, but it is still an OK flag trade in my opinion. The open price is 117.024, the stop-loss is 116.055, the take-profit is 118.758. I have opened it at 9:25 GMT:

CHF/JPY - Bullish Flag Pattern on Daily Chart as of 2020-12-29 - Post-Entry Screenshot

Update 2021-01-13 10:46 GMT: I have closed this trade about 15 minutes ago at 116.996 because the pattern setup is no longer valid in my opinion:

CHF/JPY - Bullish Flag Pattern on Daily Chart as of 2021-01-13 - Post-Exit Screenshot

I have used the ChannelPattern script to facilitate the take-profit level placement in all of these charts.

Please be mindful of currency pair correlations when deciding to trade any of these patterns. For example, taking bearish pennant trades on EUR/AUD and EUR/NZD both will double your exposure to the euro. Taking trades on all the bullish JPY patterns will result in triple exposure to the Japanese yen. And taking both NZD/JPY and EUR/NZD trades will double your exposure to the New Zealand dollar. It is best to choose your trades carefully based on additional analysis and on the breakout structure.

If you have any questions or comments regarding this set of bullish and bearish pennants and flags on the charts of six currency pairs, please feel free to post them via the form below.

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