CandleFocus

Pennant

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A pennant is a continuation pattern used in technical analysis that signals an upcoming breakout with the potential to extend an existing trend. Pennants are usually formed after a sharp move or prolonged advance, and they come in a variety of shapes including ascending, descending, and symmetrical triangles. While pennants are usually well-defined and have an undeniable shape, they can also appear less clearly on charts making identification challenging.

Pennants include two key features: a period of consolidation and a breakout. During the period of consolidation, the market should move in a consolidating range with significantly lower volume compared to the move prior to its formation. This could indicate that buyers and sellers are waiting for a signal to either enter or exit a position. Eventually, one direction will triumph as the price breaks out of the consolidation range in a strong move. This move should occur on higher-than-normal volume, which can help to confirm the direction of the breakout.

For traders, pennants are a great way to identify possible entry or exit points depending on the direction of the trend. However, before entering into a trade, traders should always wait for confirmation from other patterns or indicators. Common methods of confirmation include the use of candlestick patterns, volume checks, momentum indicators, and even options for more experienced traders.

At the end of the day, the success of trading the pennant pattern depends on how the trader applies it in their trading strategy. Traders should not rely too heavily on one pattern or indicator, but should rather try to make use of multiple sources of evidence before making live trades. With practice and patience, pennants can be a valuable addition to any trading strategy.

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