Pennants

A pennant can be bullish or bearish and is also a continuation pattern. These patters are seen often. You would want to trade these patterns only if they develop in 4 weeks or less. Some traders will say 5 weeks is okay to trade, but we have found 4 weeks or less seem to be more reliable. Bull and Bear pennants tend to be susceptible to "throwback." Throwback is a term used to describe a break in a pattern in the wrong direction before continuation of the trend.

Bull Pennant

Bullish (Continuation)

The advance has solid volume and the upward price action is strong, which forms the vertical look of a flagpole (Not always super easy to notice). The consolidation period and narrowing trading range is characterized by volume contraction as upside price action is temporarily interrupted. This forms a pennant which also resembles a symmetrical triangle, but remember a triangle can take 5 weeks to several months to form. The pennant portion of the pattern has highs and lows which can be connected by small trend lines which converge.

1. Must have overall trend direction up, prefer a trend greater than 2 months to consider. You can see intense buying pressure that creates the pole, followed by consolidation to create the pennant. This should happen in 4 weeks or less.
2. A break to the upside with increasing volume confirms the pattern. You would want to see increasing volume on the way up followed by lighter volume in the pennant and a surge in volume on the break.

Bear Pennant

Bearish (Continuation)

The decline has solid volume and the downward price action is consistent, which forms the look of an inverted flagpole. I prefer 1 big spike down on increasing volume. The resting period and narrowing price action is characterized by volume contraction as downside intensity is temporarily interrupted. This forms a pennant which also resembles a small symmetrical triangle. The pennant portion of the pattern has highs and lows which can be connected by small trend lines which converge.

1. Overall trend direction must be down. I prefer a trend greater than 2 months to consider. You can see heavy selling pressure that creates the pole, followed by consolidation to create the pennant. This should happen in 4 weeks or less.
2. A break to the downside on increasing volume confirms the pattern. You would want to see increasing volume on the way down, followed by lighter volume in the pennant and a surge in volume on the break.