I've noticed that many traders discuss patterns on charts, but the pennant figure remains one of the most underrated. Although it is a classic continuation pattern that appears everywhere. Let's understand why this pennant figure is so popular and how to use it correctly.

The pennant pattern forms after a sharp price movement—up or down. Then the price begins to trade within a narrow range, taking the shape of a small symmetrical triangle. This usually occurs roughly in the middle of a trend, signaling the start of a second wave of movement. That's why it is so valued—the pattern appears at the most opportune moment.

The main difference between a pennant and other figures is that it is preceded by a very steep and aggressive move. It’s like a flagpole before consolidation. The upper boundary slopes downward, the lower boundary slopes upward, and they converge at a point. A proper pennant forms within three weeks; otherwise, it turns into a larger pattern or breaks apart altogether.

When I look at the volume, I notice a clear pattern: during consolidation, volume decreases, but upon breakout, it sharply increases. This is a key signal that the move will be powerful. The aggressiveness of the previous trend determines the strength of the subsequent move—that's the main rule for the pennant pattern.

There are several ways to enter. You can enter at the first breakout of the boundary, or wait for a breakout of the pennant’s maximum/minimum, or even catch a pullback after the initial breakout. Measuring the target level is simple: take the distance from the start of the flagpole to its top or bottom, then project that same distance from the breakout point.

Interestingly, studies show mixed results. John Murphy considered the pennant one of the most reliable patterns, but Thomas Bulkovski tested 1,600 samples and found that successful breakouts occur in about 35% of upward moves and 32% of downward moves. The average move after the trigger was around 6.5%. This confirms that risk management is critical.

A bullish pennant occurs in an uptrend with a sharp rise, followed by consolidation before continuing upward. A bearish pennant works on the same logic but in the opposite direction—a sharp decline, then a pause, then a continuation downward. Trading is the same for both: just change the position direction.

The difference between a pennant and a flag is that a flag can be rectangular, while a pennant is always triangular. It differs from a symmetrical triangle in that the pennant is smaller and requires a strong preceding trend. It differs from a wedge in that a wedge can be a reversal, while a pennant is strictly a continuation pattern.

The simple conclusion: the pennant pattern is a tool for catching the second wave of a trend. The key condition for success is the quality and aggressiveness of the preceding move. If there was a steep and powerful move before consolidation, the probability of continuation is higher. The pattern works on all timeframes but is more common on short-term charts. Proper application combined with risk management is the foundation of successful trading.