Pennants

Pennants are continuation chart patterns, formed by a minor consolidation, which is contained with in a small symmetrical triangle.

Pattern Formation
In a clear uptrend or down trend, a small consolidation, creates a small range bound price action, which is triangular. The trend lines drawn at the highs and lows of this pattern are converging. This pattern, after a brief period, breaks out in the direction of the earlier trend.

This differs from a symmetrical triangle, by being smaller in size and having a few bars.

Study the chart given below.

A trade is taken in the direction of the earlier trend, at the break out of the trend line. A stop loss order is placed below or above the pattern, as the case may be.

Variation
A small consolidation with horizontal upper and lower trend lines, forms a Flag.

Some times a trend reversal starts with this formation. When it breaks out in the opposite direction it naturally becomes a reversal chart pattern.

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