PENNANT

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,

During downtrend, 

T=BP-(TS-PS)

During uptrend, 

T=BP+(PS-TS)

 

Where:

T is the target price;

 BP is the breakthrough point;

TS is the trend start point;

 PS is the pattern start point. 

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