What is a 'Pennant'

A pennant is a continuation pattern in technical analysis 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.

BREAKING DOWN 'Pennant'

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:

Example of a pennant pattern.

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

Trading Pennant Patterns

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.

The price target for pennants is often established by applying the initial flagpole's height to the point at which the price breaks out from the pennant. For instance, if a stock rises from $5.00 to $10.00 in a sharp rally, consolidates to around $8.50, and then breaks out from the pennant at $9.00, a trader might look for a $14.00 price target on the position - or $5.00 plus $9.00. The stop-loss level is often set at the lowest point of the pennant pattern, since a breakdown from these levels would invalidate the pattern and could mark the beginning of a longer-term reversal.

Most traders use pennants in conjunction with other chart patterns or technical indicators that serve as confirmation. For example, traders may watch for relative strength index (RSI) levels to moderate during the consolidation phase and reach oversold levels, which opens the door for a potential move higher. Or, the consolidation may occur near trendline resistance levels, where a breakout could create a new support level.

RELATED TERMS
  1. Pattern

    A pattern, in finance terms, is a distinctive formation on a ...
  2. Triple Top

    The triple top pattern is a type of chart pattern used in technical ...
  3. Breakout Trader

    A breakout trader is a type of trader who uses technical analysis ...
  4. Basing

    Basing refers to a period in which a stock or other traded security ...
  5. Double Top

    A double top is a chart pattern, characterized by two consecutive ...
  6. Rising Bottom

    Rising bottom is a pattern on a security's chart, considered ...
Related Articles
  1. Trading

    Continuation Patterns: Rectangles and Pennants

    Flags and pennants indicate direction of activity of the prevailing trend. Learn how.
  2. Trading

    4 Bullish Flag Patterns You Should Trade Now

    Here are four stocks with flag patterns, highlighting the various ways to trade this chart pattern.
  3. Trading

    Technical Analysis: Triple Tops and Bottoms

    Triple and double tops and bottoms may be tough to spot but can be powerful patterns.
  4. Trading

    3 Transport Stocks That Are Ready to Fly Higher

    Transportation stocks are about to take off, and that could give the whole market a lift.
  5. Trading

    Penny Stocks to Buy Using Technical Analysis for August 2018

    August's technical analysis penny stock action list includes issues recovering from major declines and growth companies near new highs.
  6. Investing

    Gilead, Celgene and Biogen Are Ready To Rise

    The biotech sector could be buoyed by strong performances from three industry heavyweights.
  7. Trading

    Breakout Stocks to Watch Right Now

    These three stocks are near major breakout points, which will affect the short-term, and potentially the long-term direction of the stocks.
  8. Investing

    These ETFs are Breaking Out of Chart Patterns Now

    Three buys and one sell; here are four ETFs breaking out of chart patterns right now.
  9. Trading

    Bullish Flag Formation Signaling A Move Higher

    Find out which stocks are trading within a bullish charting formation
RELATED FAQS
  1. What are the main differences between a Symmetrical Triangle pattern and a pennant?

    Understand the key differences between the symmetrical triangle and pennant patterns, including how they differ in formation, ... Read Answer >>
  2. What are the differences between patterns and trends?

    Learn the difference between a pattern and a trend. Explore how technical analysts use patterns and trends to identify trading ... Read Answer >>
  3. How can I determine a stock's next resistance level or target price?

    Determining where the price of an asset will stop once it has hit a new high is one of the most difficult tasks for any trader. Read Answer >>
  4. How do I effectively create a Range-Bound trading strategy?

    Understand the basics of trading range-bound securities, including how to profit from the relative predictability of the ... Read Answer >>
Trading Center