Pennant Pattern

A Pennant Pattern is a chart pattern that occurs after a big price move. It indicates a short break or pause in the market before the price resumes moving in the same direction as earlier. Pennant patterns indicate that, with this pause, the price will probably resume its original trend. Let's learn more about this candlestick pattern.

What is a Pennant Pattern?

A Pennant pattern is a chart pattern occurring after a large price move, known as the flagpole. The flagpole represents the initial surge or decline that sets the stage for the pennant formation. After this move, the price generally pauses a little and forms a small triangle shape, or pennant, before breaking out in the same direction as the initial big move. This breakout completes the pattern.

Types of Pennant Patterns

The two types of pennant patterns are the bullish and bearish pennant patterns:

• Bull Pennant Pattern

The bull pennant chart pattern is an indication that, after some rest, the price will resume its uptrend. The price bounces between two lines that converge instead of moving sideways between two parallel lines; it eventually breaks out, continuing the uptrend.

• Bear Pennant Pattern

A bear pennant is confirmed by the formation of a large bearish candlestick, which is considered to be the flagpole, followed by smaller candles that form the pennant. You will normally find this pattern near resistance levels. When it breaks lower from the pennant, you often see further selling and, thus, a further drop in price.

Features of Pennant Chart Pattern

• Pennants are short-term trends and may last only for a few days to a few weeks.
• The trend lines meet at the end to form the pennant shape.
• The breakout should be consistent and a continuation of the previous trend.
• Volumes usually drop during the consolidation phase.

Stages of Pennant Candlestick Pattern

There are three major stages in any pennant pattern:

• Stage 1 – First Flagpole: This is the big initial move up or down that starts the pattern.
• Stage 2 – Pennant Pattern: The phase of consolidation where the price moves in a pennant shape between the two converging trendlines.
• Stage 3 – Second Flagpole: Where, subsequently, the price breaks out of the pennant in the same direction as the first big move.

Here, volume is the key at each stage. The first flagpole should have a high volume; the pennant should have a lower volume, and the second flagpole again needs to have a high volume. 

How to Trade using Bullish and Bearish Pennants?

Trading the bullish and bearish pennants can be done in the following way:

• Identify the Pennant Pattern: Identify the pennant shape created by two converging trendlines.
• Check the Trend: Determine the direction of the price trend before the emergence of the pennant.
• Wait for the Breakout: The price should break out from the upper trendline if it forms a bullish pennant or from the lower trendline if it forms a bearish pennant.
• Configure Stop Losses and Take Profit: Stops and profit targets should be defined so that one can identify the levels of risk and potential profit that one is ready to accept.
• Additional Indicators: Look for other indicators or other patterns to confirm the signal.

Advantages and Disadvantages of Pennant Pattern

Refer to the table below to know the advantages and disadvantages of pennant candlestick pattern:

Pennant vs. Flag Patterns: What's the Difference?

Pennant and Flag patterns both show trends that will likely continue after a strong price move, creating a flagpole.

Here’s the difference between a pennant pattern and a flag pattern:

• Pennant Pattern: It looks like a small triangle, forming in a narrowing channel. The price usually breaks out when the trendlines meet, but it can happen sooner. Pennants form faster than symmetrical triangles.

Flag Pattern: It has two parallel lines for support and resistance. The price breaks out after a short pullback, which shouldn’t exceed 50% of the flagpole’s height. If the pullback is too big, the pattern may not work. Flags can also appear as rectangles, moving sideways.