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Pennants are the workhorses of the day trader. They perform an invaluable service by marking the
midway point in a move. However, if a pennant is not accompanied by a flagpole, then it's not a pennant. Also, performance depends on a strong price trend leading to the pennant. For more information see pages 522 to 535 of the
book Encyclopedia of Chart Patterns, Second Edition and the following...
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 Pennant chart pattern
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Important Bull Market Results*
Overall performance rank for up/down breakouts (1 is best): Not applicable
Break even failure rate for up/down breakouts: 2%; 4%
Average rise/decline: 25%; 19%
Throwback/pullback rate: 47%; 31%
Percentage meeting price target for up/down breakouts: 60%; 51%
* The performance results
for pennants are based on the short-term price swing, not the change from the
breakout to the ultimate high or low as in most
other chart patterns.
Identification Guidelines
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Characteristic |
Discussion |
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Price trend |
Can be any direction leading
to the chart pattern. |
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Shape |
Looks like a short symmetrical
triangle. |
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Trendlines |
Prices move between two converging
trendlines. |
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3 weeks |
Pennants are short, less than
3 weeks long. Patterns longer than that are symmetrical triangles, rising or falling wedges. |
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Flagpole |
The flagpole which leads to
the pennant should be unusually steep and last several days. |
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Volume trend |
Downward trend 88% of the
time. |
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Breakout |
Upward 61% of the time. |
Trading Tips
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Trading Tactic |
Explanation |
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Measure rule |
Compute the height from the start of the price swing
(point A in the measure rule figure to the right) to
the
end of the price swing (B) and then multiply it by the
above “percentage meeting price target.” Add it (upward breakouts) to
the bottom of the pennant (C) or subtract it (downward
breakouts) from the top of the pennant (C) to get the
target (D). |
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Half staff |
The average move from the trend start to the top of the
pennant is 27% in 14 days. The move from the pennant low to the trend end is 25%
and takes 23 days. Thus, the pennant appears nearly midway in a price move. The
half staff figure to the right shows an example. |
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Pennant tilt |
Performance suffers when the pennant
slopes in the direction of the prevailing price trend. The Pennant Tilt figure to
the right shows an example of price tilting upward in a rising price trend.
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Flat base |
If the pennant appears above (upward
breakouts) or below (downward breakouts) a flat base then expect the move to be a large one. |
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Tight pennants |
A tight pennant performs better than a loose one. A loose
pennant is one in which price meanders, pokes outside the trendline boundary,
contains white space, or looks jagged. The Tight v. Loose figure to the right shows
an example. |
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Yearly low |
Pennants perform best within a third
of the yearly low regardless of the breakout direction. |
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Throwbacks and pullbacks |
Throwbacks and pullbacks hurt postbreakout
performance. |
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 The Measure Rule
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 Half Staff
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 Pennant Tilt
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 Tight v. Loose
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Example
The above figure shows an example of a pennant chart pattern. The flagpole begins at point
A and completes at B. Following that, the pennant appears from
B to C, bounded by two converging trendlines then the decline
resumes and bottoms at D.
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