All About Pennant Pattern

What is a pennant charts pattern?

A pennant in trading is a type of continuation pattern. It is created when a security experiences large-scale movement, followed by consolidation periods with converging lines. Technical analysis refers to the first phase as a flagpole. The period of consolidation following the large movement is what distinguishes a pennant and a flagpole. One can see, in the same direction of the first large movement in a pennant a breakout movement which represents the second half the flagpole. This completes the pennant chart.

Pennant Pattern Characteristics

These three movements will help you identify a pennant trading pattern:

  • The flagpole is the beginning of a pennant design. This distinguishes a pennant from other technical indicators, such as a triangle symmetrical. This indicates an upward rise, which denotes an influx in volume and rise of stock price that precedes the pennant.
  • Breakouts levels: In the case of the pennant there will not be one, but two separate breakouts. The flagpole will end, while the second will occur after the consolidation period. Breakouts can be either upwards or down, but they will keep the trend going in one direction.
  • The Pennant: When looking at the pennant, you will notice a triangular shape. The pennant is formed by two converging trend lines.

How do I spot a pennant formation in my yard?

Flags and pennants are very similar in their structure. Both pennants and flags have converged lines which last anywhere from one to three weeks during their consolidation period. It is important to examine the volume of trades to identify a pennant pattern. The trade will experience a large volume influx during the initial move. The pennant formation will then see a period when volume drops. A breakout will also be signaled by a large volume increase.

The flagpole, as shown in the above image, shows that the previous trend is higher. Pennant formation occurs when volume decreases during periods of consolidation. This period is when traders anticipate a breakout period. This breakout period occurs when the upper trendline forms an asymmetrical triangle.

How to trade using technical analysis of pennant patterns

The art of penny trading involves correctly anticipating the breakout point and spotting the formation. Most traders will seek to enter short and long positions after a pennant breakout. For instance, a pennant trader might observe a bullish pennant forming. She might limit the amount of buying orders that are placed above the pennant’s upper trendline. The trader might search for above-average volumes that confirm the pennant pattern once the security has broken out of the upper trendline. Once the volume has increased, pennant formation can be confirmed. She can then hold her position until her target price.

For pennants, the target prices are usually established by using the flagpole's height to determine the price at which the share exceeds -breaks-out- of the pennant. Let's say, for example, that the stock price increases from Rs50 to around Rs100 due to a sharp rally. The stock price then consolidates at Rs85 before finally breaking out of the pennant at around Rs90. If a trader wants to use pennant patterns technical analysis in his trades, he or she will seek a target price between Rs50 and Rs90 that equals Rs140. The stop loss is set at the lowest point of the pennant chart. If the pattern is broken below these levels, it could invalidate it and signal a long-term price reversal.

The pennant pattern technical analysis is often used by traders in conjunction with other chart patterns. It is not possible to determine if what you see is a pennant. However, other indicators may help confirm your assessment. You can use a relative strength indicator or RSI to wait for the consolidation phase to begin. This could lead to a higher move. Another scenario is that the price consolidation could occur near the trendline's resistance levels. A breakout from this level could provide a new support level.

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