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The Pennant

Pennants are quite common. This pattern represent brief pauses in huge moves. One of the requirements for this pattern is that there must be a sharp advance in stock prices before the pattern is formed.

When the the pattern forms, it is like the stock is catching its breath before it resumes the uptrend.

The above picture shows this pattern looks like. Notice that there is a sharp upward move before the pattern is formed. The pattern is formed by having lower highs and higher lows. This pattern looks like the symmetrical triangle.

Criterias

  1. There must be a sharp upward move before the pattern is formed.
  2. There must be a prior existing trend.
  3. This pattern has two trendlines that converge, forming a triangle.
  4. This pattern usually lasts no longer than 3 weeks. Some might take up to 12 weeks. However, the ideal ones should be less than 3 weeks.
  5. Volume should dry up while the pattern is forming.
  6. The pattern is completed when it penetrates the upper trendline.
  7. Volume should increase when it breaks the trendline. As with all breakouts, an increase in volume when it breaks the trendline signifies credibility and continuation of the trend.
  8. To measure the target, add the height of the flagpole to the breakout point. The flagpole is the distance between the original breakout point to the top of the pattern.

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