Pennant chart formation is a graphical continuation pattern that signals the possible reformation of the previous direction in the future. As it is short-term and minor indicator, the pattern usually shows within a week.
A pennant is composed of two intersecting trend lines wherein support is inclining upward and resistance is inclining downward. As this happens, it forms a triangle denotative of price fluctuation inside. Such pattern usually happens when a sharp price succeed following an intensive movement.
The primary purpose of pennant is to validate a trend’s direction in case of a break through.
It is viable to sell when a pennant forms during a downtrend and if the price places itself below the support line. However, it is ideal to buy once a pennant appears during an uptrend as the price climbs above the resistance line.
When analyzing a pennant, the price is speculated to go with the same direction before the pennant showed up. The target level is calculated as,
T is the target price;
BP is the breakthrough point;
TS is the trend start point;
PS is the pattern start point.