Pennant Pattern

Pennants, named due to their approximation to a pennant flag, have one horizontal line and one inclined or declined line. This is a tricky pattern. In a bearish pennant, the price enters the wide end of the pattern and it appears as if this stock is going to rally. With successively higher dips it appears as if a correction is imminent, however, even though the dips are getting shallower and support is rising there is no change in the peaks. The breakdown occurs as the price cannot any longer be supported and those that read this pattern wrong are trying to dump their holdings.

This is reflected in the trading volume with a decreasing trading volume followed by a sharp rise as the breakout occurs.

The opposite is true for the bullish pennant. In this case, resistance is decreasing while support remains constant. Market volume mirrors that of a bearish pennant with a sharp rise in traffic as the breakout occurs.

If you plan on trading in this security, your trade indicator is when price breaks through the support or resistance lines. Buy or sell as appropriate.

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