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Page 9

Pennants are a form of consolidation:

Pennants usually form after there has been a fundamental announcement and/or a large breakout. They can also form right before a fundamental announcement, as they are considered a form of consolidation. Pennants can also form when prices have reached the value that traders are willing to pay, not more, not less.

When traders spot a pennant, which is a form of consolidation, they most often anticipate a breakout:

A breakout is when prices break out of a sideways pattern or pennant/ accumulation and break through either lines of support or lines of resistance. For a high probability pennant/flag or triangle breakout, be sure to trade in the direction of the prevailing trend. If the bulls take control of the market, they will break out to the north and establish new highs. If the bears take control of the market, they will break out to the south and establish new lows.

There are different shaped pennants that appear on a range of time frames:

  • Flag pole pennants

  • Ascending triangle pennants

  • Descending triangle pennants

  • Diamond pennants

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