Updated on March 3, 2023
A pennant is a bullish or bearish continuation pattern in technical analysis that appears as a symmetrical triangle on a price chart. It is formed when the price of an asset moves in a narrow range after a significant price move.
How to spot a pennant pattern?
Identify a significant price move in the asset.
Look for a period of consolidation where the price moves in a narrow range and forms a triangle shape.
Confirm the pattern by observing the converging trend lines that connect the highs and lows of the price action.
A break of the lower trend line of a bearish pennant or the upper trend line of a bullish pennant indicates the direction of the next price move.
How to trade using pennant pattern?
Traders can trade using the Pennant pattern by using the following steps:
Identify the formation of the Pennant pattern on a price chart.
Confirm the pattern by observing the converging trend lines connecting the highs and lows of the price action.
Place a buy order above the upper trend line of a Bullish Pennant or a sell order below the lower trend line of a Bearish Pennant.
Set a stop loss order below the Pennant pattern to limit potential losses.
Set a profit target using prior price levels or chart patterns as reference.
It’s important to consider other technical and fundamental factors in addition to the Pennant pattern before making a trade decision. And always practice proper risk management by using stop-loss orders.