What Is a Pennant?

In technical analysis, a pennant is a type of 

continuation pattern formed when there is a large
movement in a security, known as the flagpole,
followed by a consolidation period with
converging trend lines—the pennant—followed
by a breakout movement in the same direction as
the initial large movement, which represents the
second half of the flagpole.
• Pennants are continuation patterns where a period
of consolidation is followed by a breakout used in
technical analysis.

•It's important to look at the volume in a pennant—

the period of consolidation should have lower volume
and the breakouts should occur on higher volume.

•Most traders use pennants in conjunction with other

forms of technical analysis that act as confirmation.
 Understanding Pennants
Pennants, which are similar to flags in terms of
structure, have converging trend lines during their
consolidation period and last from one to three weeks.
The volume at each period of the pennant is also
important. The initial move must be met with large
volume while the pennant should have weakening
volume, followed by a large increase in volume during
the breakout.
Here's an example of what a pennant looks like:
 In the image above, the flagpole represents 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. 

Many traders look to enter new long or 

short positions following a breakout from the
pennant chart pattern. For example, a trader may
see that a bullish pennant is forming and place a
limit buy order just above the pennant's upper 
trendline. When the security breaks out, the trader
may look for above average volume to confirm that
pattern and hold the position until it reaches its
price target.
 What is a bullish pennant?

A bullish pennant is a technical trading pattern that

indicates the impending continuation of a strong upward
price move. They're formed when a market makes an
extensive move higher, then pauses and consolidates
between converging support and resistance lines.
Technical traders take this as a sign that the original
ascending price move is going to resume. This makes
the bullish pennant pattern particularly sought after, as
it can offer an early indication of significant upward
price action.

The bullish pennant pattern can occur over lots of

different time frames. Day traders look for them on
second or minute charts, while longer-term traders spot
ones that arise over weeks or even months.
 How to identify bullish pennants

To identify a bullish pennant, you’ll need to watch for

two elements. Firstly, a pronounced upward
movement beforehand known as the ‘pole’. Secondly,
a price consolidation that forms a roughly
symmetrical triangle with its support and resistance
lines.
 What’s happening in a bullish pennant?

In a bullish pennant, strong positive sentiment causes a market

to spike higher (forming the pole). The buyers that have
pushed the market higher then might back off and take profit,
while bears sense the potential for a retracement. This parity
between supply and demand causes its price to consolidate.

This parity can’t last forever, though. In a bullish pennant, the

positive sentiment wins out. Those traders who have been
waiting to buy the market leap in and send it skyward once
more
 What is a bearish pennant?

A bearish pennant is a technical trading pattern that indicates

the impending continuation of a downward price move.
They’re essentially the opposite to bullish pennants: instead
of consolidating after a move up, the market pauses on a
significant move down.

When technical traders spot a bearish flag pennant, they take

it as a sign that the downward price move is going to
continue once the market breaks below its support line. Like
their counterpart, bearish pennants can occur over any time
frame.
 How to identify a bearish pennant

To identify a bearish pennant, look for a consolidation

between support and resistance after a major bearish price
move (the pole). The support and resistance lines will form
a roughly symmetrical triangle, showing that the market is
in conflict between positive and negative sentiment.
Like with bullish pennants, falling volume is often a
good sign that a bearish pennant is forming. The
volume then rapidly builds once the market breaks
out.
 What’s happening in a bearish pennant?

In a bearish pennant, strong negative sentiment causes a

market to plummet lower (forming the pole). The sellers that
have pushed its price down might then back off and take profit,
while bulls sense the potential for a bounce back

Like with bullish pennants, this causes the market’s price to

consolidate. But consolidation can’t last forever, and without
enough bullish sentiment to recover, the market turns bearish
once more. Once it moves outside of its support line, any
sellers who have been holding back jump on – sending it to
new lows.