What it looks like
A pole: a fast, strong move up or down. Then a small triangle where highs step down and lows step up, so the candles squeeze tighter. The pennant is small compared with the pole and lasts only a handful of candles. The pattern completes on a close beyond the triangle: above it for the bullish version, below it for the bearish.
What it means
After a sharp move, the market rests in an ever tighter range. The tighter the rest, the less anyone was willing to give back, which shows the side that drove the first move is still in charge. The close beyond the pennant is the next leg starting.
Bullish and bearish versions
How to trade it
- 1
Measure the pole and draw lines along the pennant's falling highs and rising lows.
- 2
Confirmation: a candle closes beyond the pennant in the direction of the pole.
- 3
Entry: at that close.
- 4
Stop: on the far side of the pennant. Example on gold (bullish): pole from 4,010 to 4,040 (30 points), pennant between 4,032 and 4,039, close above at 4,041. Buy at 4,041, stop at 4,030, an 11 point risk.
- 5
Target: the pole length from the break, about 4,071 (or 30 points below the break for a bearish pennant).
A close back inside the pennant after the breakout candle has closed.
Where it works best
Straight after strong, fast moves on 5 minute to 1 hour charts, when the rest is short and tight.
WickSpeak finds bullish and bearish pennants automatically and names them on the candles that made them. The note says what the pennant is, how to trade it and that a close back inside it proves it wrong. In Playbook you can use it as a condition in a play, alone or alongside other patterns and indicators (any of the 146 patterns can be a condition), and backtest it on past candles with your own costs.
Common mistakes
- Confusing a pennant with a large symmetrical triangle; a pennant is small and follows a pole.
- Trading a break against the direction of the pole.
- Waiting so long that the pennant turns into a range and loses its meaning.
Related patterns
Questions traders ask
What is the difference between a pennant and a flag?
Both are short rests after a sharp move. A flag drifts in a small parallel channel, while a pennant tightens into a small triangle.
Is a pennant bullish or bearish?
It depends on the pole. After a sharp rise it is a bullish pennant; after a sharp drop it is a bearish pennant. Both are continuation patterns.
How do you measure a pennant target?
Take the length of the pole and project it from the breakout point in the same direction.
What cancels a pennant?
A close back inside the pennant after the break. The squeeze has not resolved the way the pole suggested.