I have been engaged in technical analysis for many years and want to share that the pennant is one of the most interesting patterns I work with. It is a trend continuation model that forms quite quickly and often provides excellent trading opportunities.

The pennant appears after a sharp movement of the price up or down. Imagine: the price makes an aggressive jump, then suddenly begins to consolidate, narrowing into a small symmetrical triangle. This is the pennant. Usually, it occurs roughly in the middle of a trend, indicating a second wave of movement.

What distinguishes a pennant from other figures? First, it is preceded by a very steep and rapid move, called a flagpole. This is not just any trend, but an aggressive, energetic move with good volume. Then, the price enters a consolidation phase, where the upper and lower boundaries converge at a point. Two trend lines form this narrowing structure.

The formation time typically takes two to three weeks at most. If it takes longer, the pattern may transform into a larger figure, such as a symmetrical triangle. During consolidation, volume decreases, but when a breakout occurs, it sharply increases. This is a key moment.

How I trade the pennant is quite simple. Entry is made upon breakout in the direction of the original trend. There are several options: enter immediately on breaking the boundary, or wait for a small pullback and enter when the movement resumes. To calculate the target price, I measure the height of the flagpole and project this same distance from the breakout level.

But honestly, I must say, the reliability of this pattern is not absolute. Thomas Bulkowski conducted a serious study of over 1,600 pennant examples and found that the failure rate of breakouts is about 54% in both directions. The success probability was 35% for upward movements and 32% for downward. This confirms why risk management is critically important. A stop order should be placed slightly above the resistance line for bearish pennants or below the support line for bullish ones.

There are two types: a bullish pennant forms in an uptrend and signals continuation of growth, while a bearish pennant appears in a downtrend and predicts further decline. The trading approach is the same, only the direction is opposite.

The difference from a wedge is that a wedge does not require a preceding flagpole. The difference from a symmetrical triangle lies in size and the requirements for the preceding movement. The pennant is more compact and requires a steeper prior trend. It differs from a flag in the shape of the consolidation.

My advice: use the pennant in combination with other technical analysis tools. The quality of the preceding trend determines the strength of the subsequent move. If you see a steep, aggressive jump followed by consolidation in the form of a triangle, it’s a good signal to act. The main thing to remember is that all this should conclude within three weeks; otherwise, the pattern may fall apart.