Pennant

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Pennant Chart Pattern: A Guide to Continuation Signals in Technical Analysis

What is a pennant?

A pennant is a short-term continuation pattern that appears after a strong price move (the “flagpole”). It consists of a brief consolidation with converging trendlines that form a small symmetrical triangle, typically lasting about one to three weeks. Traders watch for a breakout in the direction of the original move, ideally confirmed by rising volume.

Key characteristics

  • Flagpole: the sharp price move preceding consolidation.
  • Converging trendlines: price swings narrow into a small triangle.
  • Volume pattern: heavy volume on the flagpole, declining volume during consolidation, and a volume spike at the breakout.
  • Time frame: usually a few days to a few weeks.

How to identify and trade a pennant

  1. Confirm the prior trend: ensure a clear, sharp move produced the flagpole.
  2. Draw trendlines: connect highs and lows during consolidation to form a small symmetrical triangle.
  3. Look for volume confirmation: declining volume through the pennant, then increased volume at breakout.
  4. Entry:
  5. Bullish pennant — place an entry (market or limit) just above the upper trendline.
  6. Bearish pennant — place an entry just below the lower trendline.
  7. Price target: measure the height of the flagpole and add it to the breakout point (for bullish) or subtract it from the breakout point (for bearish).
  8. Example: a stock rallies from $5 to $10 (flagpole = $5), consolidates, and breaks out at $9 → target ≈ $9 + $5 = $14.
  9. Stop-loss: commonly placed just inside the pennant at its lowest (bullish) or highest (bearish) point; position sizing should reflect risk tolerance.

Common confirmations and filters

  • Volume spike at breakout.
  • Momentum indicators (e.g., RSI, MACD) turning in the breakout direction.
  • Breakout above/below nearby support or resistance levels.
  • Avoid trading solely on the pennant—use multiple confirmations.

Why pennants fail

  • Low or absent breakout volume — weak participation increases false-breakout risk.
  • Early entries during consolidation — entering before confirmation can lead to losses if the breakout reverses.
  • External events — news, earnings, or macro shocks can invalidate the pattern.
  • Ignoring broader market context — market-wide trends can overpower single-stock patterns.

Psychology behind the pattern

A pennant reflects a temporary equilibrium between buyers and sellers after a strong move. Traders pause, reassess, and reduce activity (lower volume) during consolidation. When one side regains conviction, the breakout resumes the prior trend.

Pennant vs. flag

  • Pennant: converging trendlines that form a small symmetrical triangle; typically lower volatility inside the pattern.
  • Flag: roughly rectangular channel with parallel trendlines that slope against the prevailing trend.
    Both are continuation patterns, but the shape and internal price action differ—use the geometry to distinguish them.

Bullish vs. bearish pennants

  • Bullish pennant: follows an uptrend and signals likely continuation upward after breakout.
  • Bearish pennant: follows a downtrend and signals likely continuation downward after breakdown.

Risks and best practices

  • Wait for confirmation (volume, momentum) before entering.
  • Set defined stop-loss orders and manage position size.
  • Consider broader market events and news risk.
  • Combine pennants with other technical tools rather than relying on them alone.

Bottom line

Pennants are reliable short-term continuation patterns when identified and confirmed correctly. Look for a clear flagpole, converging trendlines, declining consolidation volume, and a breakout with rising volume. Use measured targets, strict risk management, and additional indicators to reduce false signals.