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Pennant Chart Pattern

Pennant Chart Pattern

The Pennant Pattern is a powerful and widely observed chart pattern in technical analysis. It represents a short-term pause in the market after a strong price move whether upward or downward  and signals that the prevailing trend is likely to continue once this period of indecision ends.

The pattern is visually recognized by a small, symmetrical triangle, resembling a pennant or flag fluttering after a powerful thrust in price. Traders often use this pattern to time their entries, riding the momentum after the breakout.

How the Pennant Pattern Forms

  1. The Flagpole – The Initial Surge

    • The pattern starts with a sharp and impulsive move in price, either rising quickly in a bullish trend or falling sharply in a bearish trend.

    • This move reflects strong buying or selling pressure, often driven by news events, market sentiment, or key announcements.

    • The longer and more decisive this pole, the stronger the breakout tends to be.

  2. The Consolidation Zone – Market Pause

    • After the initial surge, the price enters a consolidation phase where it trades within converging trendlines — higher lows and lower highs.

    • This triangular area represents uncertainty as traders digest the price movement, with neither buyers nor sellers having full control.

    • It’s a natural pause where market participants wait for the next direction to be confirmed.

  3. The Breakout – Trend Resumes

    • Once the consolidation tightens and the price breaks beyond the triangle’s boundaries, it often resumes moving in the direction of the original trend.

    • This breakout is the signal that momentum is returning, and traders can enter with the expectation that the price will continue its previous trend.


Types of Pennant Patterns
1. Bullish Pennant
  • Appears after a strong upward move.
  • Price compresses into a narrow range, forming a triangle
  • Breaks upward, continuing the bullish trend.
2. Bearish Pennant
  • Forms after a sharp downward move
  • Consolidation leads into a tight, triangular pattern.
  • Price breaks downward, extending the downtrend


How to Trade the Pennant Pattern
Step-by-Step Strategy:
1.    Identify the Flagpole: Look for a strong directional move (bullish or bearish).
2.    Spot the Pennant Formation: Draw trendlines around the converging price action.
3.    Wait for Breakout: Don’t enter during the consolidation — wait for price to break above or below the pattern.
4.    Volume Confirmation: Ensure the breakout is supported by rising volume.
5.    Set Entry Point: Just above the resistance (for bullish) or below support (for bearish).
6.    Set Stop Loss: Place it just outside the opposite side of the pennant.

 Example :-  CDSL stock daily frame chart chart


This chart of Central Depository Services (India) Ltd – NSE: CDSL is a textbook example of a bullish pennant pattern, showing how after a sharp upward move, price consolidates briefly before resuming its bullish trend. This chart clearly demonstrates how the bullish pennant forms and plays out in real-time. By understanding the price action, pattern structure, and volume behavior, traders can better position themselves to ride the trend and manage their trades with confidence
  • Flagpole: Noticeable spike in volume as the price surged from ₹1,250 to ₹1,500.
  • Consolidation: Reduced volume, reflecting the market’s pause and indecision.
  • Breakout: A renewed surge in volume after price moved above ₹1,500, confirming the breakout.

 

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