The information on this page is not a personal recommendation and does not take into account your personal circumstances or appetite for risk.

Introduction

Technical analysis or Charting allows investors to use a range of patterns to assist them with timing their entry to and exit from positions. Pennants, essentially continuation patterns like triangles and flags, are some of the most helpful within a trending market – rising or falling – signalling that after a short pause the prevailing trend should continue.

Pennants exist in both Bullish and Bearish form and each can be split into 3 distinct sections;

Bullish Pennants

1. The initial rally into the pennant can be steep or gradual.
2. The Pennant represents a pause to consolidate, retracing a small part of the initial rally within a tight channel. A breakout from this channel is the first hint that a Bullish pennant could be in the making.
3. Once the shares break out from the pennant, it is possible that another rally – the same size as the first – could be delivered.

Bearish pennants

1. The initial sell-off into the pennant can be steep or gradual.
2. The Pennant represents a pause to consolidate, retracing a small part of the initial sell-off within a tight channel. A break-down from this channel is the first hint that a bearish pennant could be in the making.
3. Once the shares break down from the pennant, it is possible that another sell-off – the same size as the first – could be delivered

Remember! Nobody’s perfect

Whilst trade objectives are calculated by assuming and projecting the height of the pennant, note that Bullish or Bearish pennants don’t always deliver a move equating to the full pennant height. Sometimes they undershoot. Sometimes they overshoot. And the pennant itself is not always perfectly neat. What is most important is that overall pattern respects the general steps mentioned above.

Caveat

Individual technical indicators should never be relied upon in isolation for trading decisions, however strong the signal may be. Ultimately they are one of many indicators, which may, in the majority, be pointing the other way. Always use look at other indicators (moving averages, trendlines, price, price patterns, volume) to assist in the final trading decision. Lastly, the current trend of a share should always be respected – preempting a change can prove costly.