Recently, I paid attention again to the pennant — one of the most interesting patterns on charts. Honestly, it’s often what helps catch a trend continuation when the market seems to be pausing.

Here's what happens: the price moves sharply up or down, forming what’s called a flagpole. Then a pause occurs, a consolidation, and the price begins trading within a narrow range, taking the shape of a small symmetrical triangle. This is the pennant. It usually appears roughly in the middle of a trend — a key point that many overlook.

The pennant pattern appears in both rising and falling markets. The main difference from similar figures is size. The pennant is more compact than a symmetrical triangle and requires a sharp, aggressive move before the consolidation begins. Flags are similar, but their consolidation shape is different.

When it comes to trading, you need to catch the breakout in the direction of the main trend. You can enter in several ways: right at the breakout of the pennant boundary, at the high or low of the pattern, or wait for a small pullback and enter on the resumption of movement. The target is simple — take the height of the flagpole and project it from the breakout level.

But here’s the interesting part — the reliability of this pattern is questionable. John Murphy, in his classic book on technical analysis, calls the pennant one of the most reliable continuation patterns. However, Thomas Bulkowski conducted a study on 1,600 samples and obtained different results: the failure rate of breakouts reached 54%, while successful ones were only 32-35%. This shows that risk management is critically important.

For a bullish pennant, enter long on an upward breakout, with a stop below the support. For a bearish one, do the opposite — short on a downward breakout, with a stop above resistance. Remember, the pennant forms quickly — within three weeks at most, or it may turn into a larger pattern or simply break apart.

Main takeaway: the quality of the previous trend is everything. If there was aggressive movement before the pennant, expect a powerful continuation after the breakout. Use this pattern together with other analysis tools, and your chances of success will significantly increase. It’s one of my favorite patterns precisely because it works across all timeframes, but it’s especially good on short-term charts.