A pennant is a type of continuation pattern in technical analysis. It is formed after a large movement in a security, known as the flagpole, followed by a consolidation period with converging trend lines—the pennant—culminating in a breakout movement in the same direction as the initial large movement.
Pennants are characterized by a small symmetrical triangle created by converging trendlines, typically lasting from one to three weeks. Traders often use pennants to anticipate breakout points, with the height of the initial strong move providing an estimate for potential price targets.
what are the characteristics of a pennant pattern
The characteristics of a pennant pattern include:
- Formation: A pennant pattern is a short-term consolidation pattern that forms after a sharp price movement, characterized by converging trend lines resembling a pennant shape34.
- Components: It consists of two main components: a flagpole, representing the initial strong price movement, and a pennant, which is a triangular or wedge-shaped consolidation period following the flagpole23.
- Duration: Pennants are typically short-term patterns lasting from a few days to weeks, with an ideal duration between one and four weeks34.
- Volume: During the consolidation phase of a pennant pattern, trading volume tends to decrease as market participants reassess their positions. This decrease in volume indicates a temporary balance between buyers and sellers3.
- Breakout Direction: The breakout from a pennant pattern should occur in the direction of the previous trend, signaling a potential continuation of the movement34.
- Trading Strategies: Traders can use various methods to trade pennant patterns, such as breakout strategies, confirmation indicators, and setting stop-loss and take-profit levels to manage risk and maximize profits3.
- Bullish and Bearish Pennants: There are two types of pennants – bullish and bearish. Bullish pennants occur after an upward price movement, signaling a temporary pause before continuing the upward trend. Bearish pennants occur after a downward price movement, indicating a pause before resuming the downward trend.
what is the difference between a pennant pattern and a flag pattern
The main difference between a pennant pattern and a flag pattern lies in the formation of their trend lines. In a pennant pattern, the trend lines eventually converge, creating a mini triangle, while in a flag pattern, the trend lines are usually parallel, forming a rectangular shape
125. Additionally, pennants are characterized by a smaller size and shorter duration compared to flags, and they often have a symmetrical triangle shape. On the other hand, flags exhibit a more rectangular shape or may resemble a small parallel channel25. Both patterns are considered continuation patterns, indicating a temporary pause or consolidation in the market before a potential continuation of the existing trend.
