I've noticed that many traders underestimate the pennant pattern, even though it is one of the most common signals on charts. It is especially frequent on short-term timeframes when the market moves aggressively.

A pennant is a consolidation figure that indicates trend continuation. It forms quite quickly, usually within a couple of weeks or even less. I've seen many examples where the price sharply moves up or down, then quiets down for a while, taking the shape of a narrow symmetrical triangle — this is the pennant pattern in action.

What’s interesting: before a pennant appears, there is always a sharp rally or decline. This is called the flagpole. If there is no flagpole — what you see is probably not a pennant but something else. During the formation of a pennant, volume should decrease, and upon breakout — spike sharply. This is a key point for entry.

A pennant looks like a flag, but there are differences. A flag has a more elongated consolidation shape, while a pennant is a compact triangle. Symmetrical triangles are often confused with pennants too, but they do not necessarily have a sharp preceding move. A wedge differs in that it can be both a continuation or a reversal of the trend, plus a flagpole for a wedge is not required.

When trading the pennant pattern, I usually wait for a breakout of the triangle boundary in the direction of the original trend. There are several entry options: you can enter immediately on the breakout, wait for a pullback and a retest, or enter on the breakout of the pennant’s maximum or minimum.

To calculate targets, I measure the distance from the start of the flagpole to its end, then project this same distance from the breakout level. I usually place the stop slightly above the trendline for a bearish pennant or below for a bullish one.

But here’s what’s important to understand: according to research by Thomas Bulkovski, who tested over 1,600 examples, the success rate of pennants is not as high as it seems. The rate of unsuccessful breakouts was about 54%, and the probability of success was only 35-32%, depending on the direction. The average move after the breakout is about 6.5%. Therefore, risk management is critical here.

A bullish pennant occurs in an uptrend — the price moves sharply upward, then consolidates in a triangle, and continues rising. A bearish pennant is the same but in a downtrend: a sharp decline, consolidation, then a new drop. The trading approach is the same, just the direction differs — long for bullish, short for bearish.

Many professionals combine the pennant pattern with other technical analysis tools to improve signal reliability. This makes sense, considering the statistics. The main thing to remember: the quality of the preceding trend determines the strength of the subsequent move. If the flagpole is aggressive and steep, the breakout is likely to be strong. If the movement was sluggish — the pennant may not work.