Buy Gold on Pennant Breakout

When you look at the 4 hour chart of gold you can see the large symmetrical triangle that we have recently broken out of and the sharp rise in price that has followed from it. You can really judge the validity of a pattern by the strength of the breakout but this one was pretty extreme even based on that mantra.

As many of you would know, one of the key characteristics of the pennant pattern is for it to be led into by a ‘flagpole’ – which is essentially a near vertical rise in price – and I think that we are seeing just that in this case.

Unlike the symmetrical triangle, this will only be a valid pattern if price breaks to the upside. Typically the pennant is considered a measuring pattern which means we measure the height of the flagpole and then extrapolate that from the breakout point to determine our initial price target.

Taking a conservative measurement of the flagpole I would suggest a target from the break of about $55 would be a good estimate. I think that a stop on the far side of the pattern would be appropriate but given this is a momentum trade if the price breaks out of the pattern and then trades within it again then the trader would have to seriously consider closing the trade because momentum is clearly not there.

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2 Responses to Buy Gold on Pennant Breakout

  1. When you say this: a target from the break of about $55 would be a good estimate. – what prices exactly are you talking about….and where is the “break” ….bottom of flagpole?

    • David Land says:

      Hello,

      the way in which I have measure the falgpole height is from the breakout point of the large symmetrical triangle at the bottom of the chart (~$1,575) all the way up to the high in price where the pennant starts to form (~$1,630). The ‘break’ that I am referring to is when (and if) price breaks out to the upside of the pennant pattern. This will be the key item here because for this to be valid the price not only needs to break out of the pennant but accelerate quite quickly once it does. For the target then add the height of the flagpole on to the price where the pennant was broken and you have your first target price.

      All the best

      DL.

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