Pennant

In trading there are different types of chart patterns that allow traders to monitor and analyze the market condition. Pennant is one of these patterns or figures of technical analysis. It demonstrates sideways movement of the price and represents trendlines in the consolidation period before the breakout. It looks like a triangle, because trendlines in the pennant are converging. Consolidation is a period of traders' hesitant behavior, when a price hasn’t changed significantly. 

Pennant formation

Pennant pattern occurs after the flagpole. The flagpole is a dramatic increase of an asset’s price. Usually, this pattern develops for a few days or weeks and ends with the breakout. The breakout confirms the suggested pattern or invalidates it. In the latter case there might be another pattern.

Types of Pennants

Bullish and bearish pennants. They differ from each other in the directions of the movement. If the pattern goes upward it's a bullish pennant, if it goes downward then it's a bearish pennant. On the chart below you can see an example of the bullish pennant pattern. Beside aforementioned flagpole, pennant, and breakout there are marked treadlines of resistance and support levels.

Differences between Pennants and flags

The pennant pattern is similar to the flag pattern. Either of them occurs almost the same way and have the same implications, but the trendlines on these charts behave differently. Flag is encompassed by more parallel lines than the pennant. The pennant pattern usually forms a triangle. Both pennants and flags can demonstrate upward or downward movements. 

Trading strategy

Technical analysis assists traders in the estimation of their actions and strategies. In order to get profit they can enter short or long positions depending on the market tendencies.

For example, if a security increases from $10.00 to $20.00, consolidates at $17.00, and then breaks out at $18.50, target price will be approximately $28.50. You should sum up the price at the beginning of the sharp growth and the price of the breakout. The stop-loss level can be placed close to the breakout beginning or even under the pennant in order to minimize risks. 

However, you should remember that it’s important to take into consideration several chart patterns. Altogether they can create a more valid perception of the economic situation.