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Patrick Stockdale
Written by Patrick Stockdale | May 9, 2022

What Is A Pennant Chart Pattern?

In technical analysis, a pennant pattern is a continuation chart pattern formation that can form on the price charts of a financial market. It signals that the price of a market may continue in the direction of the underlying price trend.

The pennant is formed when there is a clear and sharp trend in the price followed by a period of price consolidation where the swing highs and the swing lows start to converge and form the pennant section of the pattern. The price then continues in the original direction of the trend.

A pennant pattern can be a bullish or bearish indicator depending on where it forms. If it forms during a bullish trend, it is said to be a bullish signal and if it forms during a bearish trend, it is said to be a bearish signal in the market.

Once the price of the market breaks out from the consolidation period, the pattern is said to be completed.

Pennant Pattern Components

Pennant Pattern Components

In order to identify a pennant chart pattern, there will need to be three components displayed on the price chart.

The 3 components of a pennant chart pattern are:

  • A flagpole: This is the steep price increase or decline at the beginning of the pennant pattern formation. It is called the "flagpole".
  • A rising support level: This is the rising support level that connects the higher swing lows of the prices together.
  • A declining resistance level: This is the declining resistance level that connects the low swing lows of the prices together.

Drawing a pennant chart pattern involves combining these components of the flagpole and the converging support and resistance levels together.

Pennant Pattern Types

There are two types of pennant chart patterns. The two types are:

  • Bullish Pennant: A bullish pennant is a bullish chart pattern that forms during a bullish price trend and it signals that the price may increase higher when the pattern is completed.
  • Bearish Pennant: A bearish pennant is a bearish chart pattern that forms during a bearish price trend and it signals that the price may decrease lower when the pattern is completed.

A bearish pennant looks like an inverted version of the bullish pennant with the same components used in both the bullish and bearish pennant.

Pennant Chart Pattern Examples

Below are visual examples of the pennant chart pattern.

Example Of A Bullish Pennant Pattern

Example Of A Bullish Pennant Pattern

The price chart of Netflix stock illustrates a bullish pennant chart pattern. There was an initial steep and bullish price increase. This area of the pattern is known as the flagpole.

The price of NFLX starts to consolidate where the pennant section forms followed by a breakout of the price and a further continuation of the bullish price trend.

Example Of A Bearish Pennant Pattern

Example Of A Bearish Pennant Pattern

In the daily price chart of Groupon above, a bearish pennant chart pattern formed. There was an initial and sharp bearish price decline. This area of the pattern is called the flagpole.

The price of Groupon consolidated where it formed the pennant part of the pattern with a defined rising support level and declining resistance level.

Once the price of Groupon breaks down below the rising support level, it leads to a continuation of the bearish price trend and much lower prices.

Example Of A Pennant Pattern In Forex

Example Of A Pennant Pattern In Forex

In the price chart of EUR/USD, a bullish pennant formed which resulted in a continuation of the bullish trend after the price breaks out through the resistance level.

Pennant Pattern Timeframes

A pennant chart pattern can form on any timeframe price chart. Popular timeframes used to trade pennants include:

  • 1-minute charts
  • 30-minute charts
  • 60-minutes charts
  • Daily charts
  • Weekly charts

Typically, scalpers, day traders and swing traders will browse these timeframes to find trading opportunities with the pennant pattern.

How To Find Pennant Patterns

The methods of finding pennant patterns are:

  • Use a pennant chart pattern scanner: Use a bullish and bearish pennant chart pattern scanner to automatically find these patterns in various markets.
  • Browse through the price charts manually: Traders can manually scan through the price charts of markets and find them manually.
  • Read professional chartists Twitter feed: Traders can browse the Twitter feeds of professional chartists to find pennant patterns.
  • Browse through the price charts manually: Traders can manually scan through the price charts of markets and find them manually.
  • Watch technical analysts on Twitch: Traders can watch live streams of technical analysis on Twitch daily where they can find the analysts highlighting pennant patterns.

The fastest way to learn pennant patterns is to apply the option of manually browsing through the price charts of financial markets to find them.

This will help a new trader to learn the pattern much quicker.

Pennant Pattern Benefits

The benefits of the pennant pattern are:

  • It can help traders catch large price moves: A pennant can signal an explosive trending move in the price of a market once the price breaks out or breaks down from the pattern.
  • It can offer a high reward to risk ratio: The pennant pattern can offer a reward to risk ratio of over $3+ reward for every $1 risked.
  • It can be traded with small risk levels: The pennant pattern can offer very small risk levels to place stop-loss near the entry point.
  • It is easy to learn: New traders can learn the pennant pattern relatively fast as there is very little complexity involved in its understanding.
  • It works on all timeframes: The pennant pattern can be applied to any timeframe and is not limited to just one.
  • It can be applied to any market: The pennant pattern can form in any market and is not limited to just a few.

Pennant Pattern Limitations

The limitations of the pennant chart pattern are:

  • It can be confused with flags: New traders mix up identifying pennants with flags and struggle to distinguish between the two.
  • The entry point is not always clear: The exact breakout or breakdown entry point is not always clear to see.
  • It can create false breakouts: The pennant pattern can create many false signals before the real breakout or breakdown occurs.

Pennant Pattern Formation Duration

The length of time a pennant pattern takes to form will depend on the timeframe of the price chart that is used.

Popular timeframes and the corresponding duration for the pennant pattern to form are below.

  • It takes approximately 20 to 30 minutes for a pennant to form on a 1-minute price chart.
  • It takes approximately 10 hours to 15 hours for a pennant to form on a 30-minute price chart.
  • It takes approximately 20 to 30 hours for a pennant to form on an hourly price chart.
  • It takes approximately 20 to 30 days for a pennant to form on a daily price chart.
  • It takes approximately 20 to 30 weeks for a pennant to form on a weekly price chart.

Frequently Asked Questions About The Pennant Pattern

Below are frequently asked questions about the pennant chart pattern.

Is A Pennant Pattern A Bullish Or Bearish Signal?

A pennant pattern can be either bullish or bearish depending on the type of pattern.

A bullish pennant is a bullish signal in a market and a bearish pennant is a bearish signal in the market.

Is A Pennant Pattern A Reversal Or Continuation Pattern?

A pennant pattern is a continuation pattern meaning when it forms on a chart, it signals a continuation in the direction of the underlying price trend.

What Does A Pennant Pattern Tell You?

A pennant chart pattern indicates a potential continuation in the direction of the price trend in a market.

If the trend is bullish and a pennant pattern forms, it signals a continuation of the bullish trend.

If the trend is bearish and a pennant pattern forms, it signals a continuation of the bearish trend.

What Is The Difference Between A Pennant And A Flag Pattern?

Flag patterns and pennant patterns like similar with one difference in the shape of the price consolidation period before the breakout.

A flag pattern has parallel support and resistance level during the consolidation period whereas a pennant pattern has converging support and resistance levels during the consolidation period before the breakout.