Technical analysis relies heavily on chart patterns to forecast future price movements. This guide explains four classic chart patterns: **Bullish Pennant**, **Bearish Pennant**, **Descending Broadening Wedge**, and **Ascending Broadening Wedge**.
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1. Bullish Pennant
* **Formation**: Appears after a sharp upward price movement (called the flagpole), followed by a brief consolidation phase forming a small symmetrical triangle.
* **Signal**: Breakout above the upper trendline signals a continuation of the uptrend.
* **Meaning**: Indicates strong bullish momentum. Traders often enter long positions after the breakout.
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2. Bearish Pennant
* **Formation**: Forms after a steep downward movement, followed by consolidation in a triangular shape.
* **Signal**: Breakdown below the lower trendline signals continuation of the downtrend.
* **Meaning**: Suggests further bearish movement. Traders may look to enter short positions upon breakdown.
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3. Descending Broadening Wedge
* **Formation**: Price moves between two diverging trendlines that slope downward, forming a broadening wedge.
* **Signal**: Breakout above the upper trendline usually signals a bullish reversal.
* **Meaning**: Traders may consider buying opportunities after confirmation of the breakout.
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4. Ascending Broadening Wedge
* **Formation**: Price fluctuates between two diverging upward-sloping trendlines.
* **Signal**: Breakdown below the lower trendline indicates a bearish reversal.
* **Meaning**: This pattern suggests weakness despite rising prices. A breakdown may be a signal for selling or shorting.
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Conclusion
Understanding these classic chart patterns helps traders make informed decisions and anticipate market movements. Always wait for confirmation (breakout or breakdown) to reduce the risk of false signals.