A Pennant is usually a method of pattern trading based on a continuation pattern. Continuation patterns also include Ascending Triangles, Descending Triangles, Wedges, Flags, Symmetrical Triangles and Pennants and are essentially technical patterns that are expected to lead to the continuation of an existing trend. Continuation patterns are considered a powerful trading tool as they usually result in extremely low risk trading opportunities and spectacular returns.
Although a pennant will act in similar nature to a flag pattern the actual look of the trend is more akin to a triangle pattern and at first glance a bullish pennant may appear to look very much like symmetrical triangles but on closer inspection are typically of a smaller size and duration with volume tending to contract during the pause and then increase on the breakout. The pennant is also not considered to be as volatile as a symmetrical triangle.
The pennant is often interpreted as a brief pause occurring in a strongly trending market and it is considered that the movement following the completion should duplicate the move preceding completion of the pennant.
A bullish pennant, one that performs on a uptrend will result in prices that break higher while a bearish pennant will result in breaking at a lower level.« Back to Forexpedia Index