A pennant formation is a very short term continuation pattern that lasts anywhere from 1 to 3 weeks in duration.
Most trades have probably seen this formation many times, but have never really thought about how to take advantage of it.
What it looks like A pennant formation consists of a long pole represented by a large spike in price followed by a symmetrical triangle coming off it.
The symmetrical triangle is formed by the price narrowing - lower highs and higher lows.
When the price has nowhere to go it breaks out in the direction of the overall trend.
This pattern is quite reliable, but will not work a 100% of the time - no pattern does.
How to use the Pennant If you suspect a pennant formation is forming you can plan your entry and exit levels well in advance.
You can even figure out roughly when the breakout is most likely to take place.
Another great aspect of the pennant is being able to forecast how high or low the price will move on breakout.
To do this simple measure the pole of the pennant and take that height and apply it to the point of breakout.
Things to keep in mind A pennant takes 1 to 3 weeks to form.
If it is any shorter or longer it isn't as reliable.
Also keep in mind that volume should be decreasing as the pennant forms.
Pennants are great patterns for traders to trade.
They are o only reliable, but also very profitable as the pole of the pennant is usually quite large indicating the the price move is only half complete.