Pennant

What Is a Pennant?

In technical analysis, a pennant is a type of continuation pattern framed when there is a large movement in a security, known as the flagpole, trailed by a consolidation period with combining trend lines — the pennant — followed by a breakout movement in a similar course as the initial large movement, which addresses the last part of the flagpole.

• Pennants are continuation patterns where a period of consolidation is trailed by a breakout utilized in technical analysis.
• It's important to take a gander at the volume in a pennant — the period of consolidation ought to have lower volume and the breakouts ought to happen on higher volume.
• Most traders use pennants related to different forms of technical analysis that act as confirmation.

Grasping Pennants

Pennants, which are like flags in terms of structure, have combining trend lines during their consolidation period and last from one to three weeks. The volume at every period of the pennant is likewise important. The initial move must be met with large volume while the pennant ought to have debilitating volume, trailed by a large increase in volume during the breakout.

Here is an illustration of what a pennant resembles:

In the picture over, the flagpole addresses the previous trend higher, the period of consolidation forms a pennant pattern, and traders watch for a breakout from the upper trend line of the symmetrical triangle.

Numerous traders hope to enter new long or short positions following a breakout from the pennant chart pattern. For instance, a trader might see that a bullish pennant is framing and place a limit buy order just over the pennant's upper trendline. At the point when the security breaks out, the trader might search for better than expected volume to affirm that pattern and hold the position until it arrives at its price target.

The price target for pennants is frequently settled by applying the initial flagpole's level to the place where the price breaks out from the pennant. For example, if a stock ascents from $5.00 to $10.00 in a sharp rally, unites to around $8.50, and afterward breaks out from the pennant at $9.00, a trader could search for a $14.00 price target on the position — or $5.00 in addition to $9.00. The stop-loss level is much of the time set at the absolute bottom of the pennant pattern, since a breakdown from these levels would discredit the pattern and could mark the beginning of a longer-term reversal.

Most traders use pennants related to other chart patterns or technical indicators that act as confirmation. For instance, traders might look for relative strength index (RSI) levels to direct during the consolidation phase and reach oversold levels, which opens the door for a potential move higher. Or on the other hand, the consolidation might happen close trendline resistance levels, where a breakout could make a new support level.

Illustration of a Pennant

We should investigate a genuine illustration of a pennant:

In the above model, the stock makes a pennant when it breaks out, encounters a period of consolidation, and afterward breaks out higher. The upper trend line resistance trend line of the pennant additionally compares to reaction highs. Traders might have looked for a breakout from these levels as a buying opportunity and benefitted from the subsequent breakout.