Pennant pattern
Also known as: pennant
A pennant pattern is a short-term continuation pattern that forms after a sharp, fast price move, known as the flagpole, when the pauses and consolidates in a small before typically resuming in the same direction as the initial move. It shows up on a chart as a tight, converging wedge of sitting at the top of the flagpole, usually over a relatively short number of sessions.
The pattern forms because a sharp move often leaves both buyers and sellers a little unsure of themselves, buyers who missed the initial surge hesitate to chase it, while sellers who missed shorting it look for a bounce to fade. That standoff produces a narrowing range of smaller and smaller price swings, converging drawn across the highs and lows of the consolidation. A bullish pennant follows a sharp rally and tends to resolve with another leg higher, while a bearish pennant follows a sharp decline and tends to resolve with another leg lower.
Traders typically look for a breakout from the narrowing range in the direction of the original flagpole move, often watching for a pickup in volume to confirm that the move has real conviction behind it rather than being a . Because pennants are short-lived by nature, usually resolving within one to a few weeks, they are more commonly used by short-term traders looking to ride the continuation of a fast move than by longer-term investors focused on a company's fundamentals.