Pennant Pattern

A pennant pattern is a short‑term continuation formation that appears on a price chart after a sharp, directional move. It looks like a small symmetrical triangle, created by converging trendlines that bound a brief consolidation before the prior trend resumes. Traders view the pennant as a signal that the momentum pause is temporary and that the breakout will likely occur in the same direction as the initial thrust.

How It Works

The pattern develops in three stages:

• Flagpole: A strong, almost vertical price move that sets the precedent trend.
• Pennant formation: Price consolidates within narrowing, symmetrical trendlines, usually lasting one to three weeks. Volume tends to dry up during this phase.
• Breakout: When price pierces either trendline with increased volume, the prior trend is expected to continue. The measured move target is often the length of the flagpole added to the breakout point.

Traders typically place entry orders just beyond the breakout line, set stop‑loss orders inside the pennant, and use the flagpole length to estimate profit targets.

Why It Matters

The pennant pattern provides a clear, rule‑based framework for trading continuation moves, helping participants avoid false reversals and improve risk‑reward ratios. For example, after a stock jumps from $50 to $55 on strong earnings, it may form a pennant over ten days as traders pause. A breakout above the upper trendline with rising volume suggests the rally will resume, projecting a target near $60 ($55 plus the $5 flagpole). Recognizing this setup enables traders to enter with defined stops and capture the next leg of the trend.