Pennants

“Pennants” is a term used in technical analysis to refer to a formation. The pennant formation is considered a signal indicating that a trend will continue.

The pennant formation occurs when a trend rapidly and sharply rises or falls. This formation represents a period where the trend pauses temporarily and then continues.

The pennant formation consists of two components: a flagpole and a flag. The flagpole represents the period where the trend rises or falls rapidly. Then, the price movement narrows and takes on the shape of a flag. This narrowing indicates that the price consolidates for a while and the trend will continue.

There are certain criteria for the formation of a pennant:

1. Flagpole: There must be an existing trend before the formation. This trend can be a rapid and sharp rise or fall.

2. Flag: After the flagpole, the price movement narrows and forms a flag shape. The flag is defined by an upward trend line in an ascending trend and a downward trend line in a descending trend. The flag merges with a trend line that starts from the high or low point of the flagpole and follows the price movements.

The completion of the pennant formation occurs when the price breaks out of the flag and the trend continues. This continuing trend usually covers a distance approximately equal to the high or low point of the flagpole.

The pennant formation provides a signal to traders that the trend will continue. Therefore, when the formation is completed, traders often consider opening a position in the direction of the trend. However, like any formation, the pennant formation can also give false signals. Therefore, it is important to use it in conjunction with other technical analysis tools and indicators.

In conclusion, the pennant formation represents a period where a trend pauses temporarily and then continues. This formation provides a signal to traders that the trend will continue, and it can be used to consider opening a position in the direction of the trend. However, it should be used in conjunction with other analysis tools and verified before making any trading decisions.