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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;
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.
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.