Pennants | Make the most out of sudden price bursts

Pennants

Pennants

Pennants

Pennants are a very interesting type of formations you can come across during your technical analysis, so it seems like a pretty good idea to dedicate a whole article to them. Recognizing them correctly can tell you how the price is going to behave in the future because they appear in very specific situations. However, you do have to be fairly well familiarized with the way things work in this business to be able to tackle this topic. If you’re still a beginner, we have a wide range on suitable articles right here on this website, so go through them first. On the other hand, if you think you’re ready, let’s see what our experts have to say.

Pennants | Sudden bursts

Pennants are a subspecies of continuation patterns and this fact alone can already tell you a lot. However, they are specific continuation pattern in that they are characterized by sudden bursts of stock value. This makes the line on your Chart appear fairly long and almost vertical until it reaches the consolidation area. Given that this is a continuation pattern, you know that the line exiting that area will continue to move in the same direction, and you can expect the breakout to be just as long as the initial push. This is why we said that you can predict future price movements by identifying pennants. There is one more thing you need to know about them, though, so stay with us and read on to see what it is.

Pennants | Specific consolidation areas

When the price reaches the consolidation area in this particular move, you may notice that this area is shaped like a triangle. This is another distinguishing feature of pennants, as the two trendlines will be converging on each other before another big spike. Since it is quite obvious that you will be trading call options when pennants appear, this consolidation area becomes extremely important. Pennants can last anywhere between one and twelve weeks, although some traders think that already after week eight they become less reliable. Anywhere between one and four weeks is considered to be the best time of this move’s reliability. It should also be said that the structure of pennants is similar to that of Flags, so try not to get them mixed up.  

Pennants | Conclusion

Pennants are an element of technical analysis and can be very helpful to traders because of their characteristics. Sharp spikes in price movement followed by triangular consolidation areas are their main features, and once you master that, you will have a powerful tool at your disposal. It does take some skill and knowledge, however, to make correct predictions based on these movements, so if you’re still new to this there are other, more important topics you need to cover first. Browse around our website a bit and you will find them in no time.

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FURTHER READING:

1. Apparatus and process for calculating an option (Vergil L. Daughtery, III – 2006)
2. Japanese Candlestick Charting Techniques (S. Nison, 2009)
3. Cybernetic Analysis For Stocks & Futures (J. F. Ehlers, 2004)
4. Irrational Exuberance (R. Shiller, 2000)
5. The Alchemy Of Finance (G. Soros, 2007)

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