Welcome to the second post in a series dedicated to the chart patterns I use and look for every day during my technical analysis of the UK stock market. Last week we looked at the flag chart pattern. Today, we will look at the pennant chart pattern.
You will be familiar with the attributes of the pennant chart chart because they are similar if not identical to the flag chart pattern. The most obvious difference between them is the shape of the flag after the formation of the pole.
The flag chart pattern exhibits a flag that is rectangular and usually slanting slanting away from the dominant trend. The pennant chart pattern exhibits a flag that is triangular in shape and is usually symmetrical.
To illustrate, take a look at the following chart:
- Is a bullish pennant i.e. is in an established up trend
- Like the flag chart pattern, the pennant chart pattern is a continuation pattern
- The pennant chart pattern has a flagpole which forms with an explosive move in price accompanied by heavy volume
- The pennant is triangular in shape
- Volume declines after the flagpole during the formation of the pennant itself
- The best way to trade the pennant chart pattern is a break above resistance (top line)
Hopefully you can see that the pennant chart pattern is a very close relation to the flag chart pattern.
Usage Of The Pennant Chart Pattern
Like the flag chart pattern, the pennant chart pattern works best when there is a marked increase in volume, especially during the formation of the pole which can last for up to three days. I will enter a trade when the price breaks resistance and place a stop loss beneath the support line.
Next time you are flicking through some charts, try to see if you can spot the pennant chart pattern and more importantly, notice what happened to the price afterwards!
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