What Is The Pennant Pattern & How To Trade With It

Pennant Pattern

The Pennant pattern is a continuation pattern that forms when there is a large price movement, followed by a brief consolidation, and finally moving in the same direction. The pattern looks like a small symmetrical triangle.

What is the Pennant pattern?

The Pennant compromises of series of price’s highs and lows, before indicating trend continuation. The sizeable initial movement of the pattern is called a flagpole. When the Pennant pattern completes, the price moves in a similar direction of the large initial movement, signifying trend continuation. This is also known as the second half of the flagpole.

The Pennant pattern has short consolidation spam of one to three weeks and has converging trend lines during this period.

When identifying the pattern, traders should be careful about the volume. At the initial stages, there is a massive movement, which represents greater volume. The consolidation period has a weak volume, and when the breakout occurs, there is a substantial volume again.

This is how the Pennant appears on the chart:

Pennant pattern on a chart
Pennant pattern on a chart

The structure of the Pennant resembles the Flag pattern and the Symmetrical Triangle pattern. But, the Flag is a reversal pattern, and in Symmetrical Triangle, the trend lines should converge equally.

How to use the Pennant pattern?

To apply the Pennant, one must familiarize himself/herself with its bullish and bearish variations.

a. Bullish Pennant

The bullish Pennant pops up in an uptrend and signals the continuation of the trend. Traders take their long positions after the breakout. The candle close to the Pennant provides an entry point with stop-losses set near the breakout candle’s low.

Bullish Pennant Pattern
Bullish Pennant Pattern

b. Bearish Pennant

The bearish Pennant surfaces in a downtrend and identifies trend continuation. Traders go short after the breakout. The candle close to the Pennant gives entrance opportunity with stop-losses set near the high of the breakout candle.

Bearish Pennant Pattern
Bearish Pennant Pattern

In both bullish and bearish Pennants, profit-targets can be placed by measuring the first half of the flagpole’s distance. The calculated distance can then be applied after the breakout candle.

For example, if the price of EUR/USD rises from 1.2890 to 1.2900, consolidates at 1.2895, breaks from the Pennant at 1.2898, then profit-targets are 1.2890 + 1.2898 = 1.2988.

Sometimes the Pennant shows a price reversal rather than a continuation. This reversal can cause losses. To avoid trading in situations like these, a trader could combine the Pennant with momentum oscillators like the RSI or Stochastics. In this way, he/she can try to spot the direction of the overall trend and take positions according to these analysis.

Pennant pattern trading strategy

If spotted correctly, the Pennant pattern can be useful. Although the pattern can develop on shorter and longer timeframes, it may be more beneficial to some traders to find the pattern on longer timeframes. This is because the Pennant’s consolidation period can be anywhere between one to three weeks. However, traders may look for the Pennant pattern on any timeframe according to their own individual trading needs.

Pennant pattern buy strategy

  • Locate the pattern in an uptrend.
  • Wait for the price bar to go bullish before entering.
  • Enter the trade after the breakout candle.
  • Place a stop-loss near the low of an entry point.
  • Exit the trade when the trend reverses.

Pennant pattern sell strategy

  • Look for the pattern in a downtrend.
  • Wait for the price bar to go bearish before entering.
  • Enter the trade after the breakout candle.
  • Place a stop-loss near the high of an entry point.
  • Exit the trade when the trend reverses.

Pennant pattern conclusion

The Pennant pattern is a chart pattern that can sometime define trend continuation. To filter out false signals, some traders may apply the Pennant pattern with momentum oscillators.

The Pennant Pattern can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy.