Probably, every trader has encountered a pennant figure on a chart and wondered — is this an entry signal or just noise? I have seen this pattern many times in action and want to share why it deserves attention.

In technical analysis, the pennant figure is a continuation pattern that forms after a sharp price movement. Imagine: the price makes an aggressive surge up or down, then begins trading within a narrow range, taking the shape of a triangle. This is the pennant. Usually, it occurs somewhere in the middle of a trend, signaling the start of a second wave of movement.

What’s interesting — the pennant forms quickly, within three weeks at most. It’s not a long-term pattern. Two trend lines limit this figure: the upper line slopes downward, the lower line slopes upward, and they converge at a point. If you see this — it’s a signal that the price is about to choose a direction.

Before a pennant appears, there must be a strong movement. I mean a truly aggressive rally or decline with high volume. This is the flagpole — the foundation of the entire pattern. If there is no flagpole, then it’s not a pennant.

When a breakout occurs, volume sharply increases. This is a key moment. That’s when we enter a position in the trend’s direction. There are several ways: you can enter right at the breakout of the boundary, wait for a pullback and a retest, or enter on the breakout of the pattern’s high/low.

The target size is simply measured: take the height of the flagpole and project the same distance from the breakout point. For example, if the flagpole was $0.80, then the target will be $0.80 from the trigger. The stop is placed slightly above the resistance line for bearish pennants or below the support for bullish ones.

Now about reliability. John Murphy, in his classic book, considers the pennant pattern one of the most reliable. But Thomas Bulkowski conducted extensive research — tested over 1,600 examples. And here’s what he found: the failure rate of breakouts is about 54%, successful breakouts only 35%. The average movement after the trigger was 6.5%. It’s important to understand — the pattern works, but not always.

The difference between bullish and bearish pennants is only in the direction. A bullish pattern forms in an uptrend, a bearish one in a downtrend. The trading approach is the same — enter in the trend’s direction.

The pennant differs from other patterns. A flag looks similar, but a flag can be rectangular, while a pennant is always triangular. A symmetrical triangle is larger and doesn’t require such an aggressive flagpole. A wedge can even be a reversal pattern.

What I see in my practice — trading with pennants works best on short-term timeframes and when the preceding trend is truly aggressive. If the movement was sluggish, the breakout often disappoints. Many experienced traders combine pennants with other analysis tools to increase the probability of success.

An important point — risk management. Yes, the pattern is reliable by technical analysis standards, but it’s not a guarantee. Always use stops, don’t overcomplicate your position. The quality of the previous trend is the main key to success. If you see a sharp, steep rise or fall, followed by consolidation in the form of a triangle — that’s your signal.