Pennants Chart Pattern

A pennant is a fairly common chart pattern, especially on shorter time frames. It has a lot of similarities to a flag, as it is an impulsive move followed by a consolidation. However, while a flag forms a channel, the pennant forms a triangle at the top or bottom of an impulsive move. It can be either bullish or bearish depending on what direction the market is moving. Essentially, the way to think about it is that a triangle has formed, showing that the market is trying to build up enough momentum to continue the move that formed what would be the pole.

As you can see on the graphic below, we have an impulsive move followed by a triangle. It looks like an old collegiate pennant, hence the name. These suggest continuation when they appear.

Pennant formation

Pennant formation

Once we break the top of the actual triangle itself, war the “pennant”, the market is free to continue going in the same direction. In this particular example, it is a move higher. However, we could reverse this and form a pennant at the bottom of a massive move lower, and anticipate the same type of reaction, simple continuation once we break down below the bottom of the triangle in that case. In this example though, you can see that the buyers to go over and continued to push much higher. With fact, the sellers begin to lose even more money, thereby making it a bit of a self-fulfilling prophecy as they have to close out their positions.

Pennant in action.

Pennant in action.

 

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