The Pennant chart pattern is a strong trend continuation pattern that resembles a triangle. It appears after a sharp price movement, known as the Flagpole. The Pennant looks like the Flag, but its body includes converging trend lines instead of paralleling ones.
When you detect it correctly, there's a high possibility of a breakout in the direction of the prevailing trend.
How Pennant works
A Pennant pattern appears during a strong market trend, showing that the trend will likely resume after a short pause. While some traders might think this pause could lead to a trend reversal, the key is the line opposite the Flagpole. The Pennant pattern is completed when the price breaks out of this line, continuing in the direction of the initial movement.
This breakout is where traders look to join the trend, expecting the price to keep moving in the same direction as before. It often triggers a lot of trading orders, driving the trend forward.
Identifying Pennant
Bullish Pennant
Begin by finding a strong bullish price move, which serves as the Flagpole.
Look for a slight downward consolidation, forming a small symmetrical triangle resembling a Pennant on a Flagpole. The Pennant's body must always be smaller than the Flagpole.
The pattern completes with a decisive breakout above the Pennant.
Bearish Pennant
Start by finding a sharp price decline, creating a Flagpole that points downwards.
Look for a slight upward consolidation, forming a small symmetrical triangle resembling a Pennant on a Flagpole. The Pennant's body must always be smaller than the Flagpole.
The pattern completes with a decisive breakout below the Pennant.
Trading examples
Bullish Pennant
Once the pattern is formed, look for a breakout towards a bullish trend.
After the breakout, open a Buy order with a Stop Lossbelow the last minimum.
Ensure your Stop Loss is less than 5% of your total deposit to calculate how much you should invest in this position.
Place Take Profit on the local maximum. This level is your first target. The second target could be more profitable and is at a level equal to the Flagpole's length.
Bearish Pennant
Once the pattern is formed, look for a breakout towards a bearish trend.
After the breakout, open a Sell order with a Stop Lossabove the last maximum.
Ensure your Stop Loss is less than 5% of your total deposit to calculate how much you should invest in this position.
Place Take Profit on the local minimum. This level is your first target. The second target could be more profitable and is at a level equal to the Flagpole's length.
Leveraged trading involves risk. This content is not investment advice. Trade responsibly.