Pennant Stock Chart Pattern (Continuation) & How to Trade it: Technical Analysis Ep 218

January 10th, 2019

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Hey, this is Sasha and welcome to another episode of "Let's talk stocks."

In this episode, we're going to go back and take a look at some technical analysis basics.

We're going to take a look at that Pennant pattern.

It is a continuation pattern which means it's a pausing pattern. It pauses and then it continues moving in the same direction that it originally came from.

We'll look at the:

  1. Bullish side and the bearish side;
  2. What does it look like;
  3. Some of the previous trends;
  4. Volume;
  5. Projections;
  6. Entry point; and
  7. Few tips

When we look at the Pennant Pattern

You can think of it like a triangle pattern just a lot more compressed. It's a lot smaller of a trend.

Usually with a Pennant pattern, what happens is let's take a look at the bullish case scenario -- is it runs up very quickly. So the movement is very fast on the bullish scale.

Then, what happens is you create this triangle a tiny triangle, symmetrical triangle pause. What this does is it hits one point here. This will be resistance one, and it slowly isolates here for maybe four bars. It could be eight bars depending on what you're looking at, but it separates here for a couple of points.

We could do maybe three or four points.

Then eventually, it'll break out very quickly to the upside.

The pause is very short, and that's the critical difference here comparing it to let's say a symmetrical triangle. This is much shorter a symmetrical triangle maybe two or three times longer or takes a lot more time, and this is much more violent here.

Again, this could come back and retest this supporting resistance level. So it'll go back and then go higher, but that's what the pattern looks like.

Previous trend

Of course, it's going to be in the same direction that it's moving in because it's a continuation pattern. The volume, if you're looking at the volume, you're going to have much more substantial volume. This is heavy in the movement of the direction of the stock.

Then once we get into this little digestion period, it might die down or get a little bit lighter or weak. Then again, you see a massive amount of volume coming in as we get another breakout move to the upside.

If you're looking for Projections

What you're looking for is the distance here that we've gone from the initial breakout point to that resistance level.

That's typically an excellent level to go with and then move that to them from the breakout of the resistance to the next stage. It'll probably be somewhere up at this level will be. The target area that you're looking to hit is somewhere right around that point.

It doesn't always work out that way. That's a guideline. I also think of it that it's going not to hit those levels because we've already moved with such great steam and power. And when things move like a rocket ship, eventually, they pull back.

Typically, the target from what I've seen is -- it doesn't always hit those targets. Usually, a little bit less especially with these fast acceleration movements.

It just runs out of steam. It runs out of energy. It runs out of fuel. It's just flooring the gas pedal, so the movement is it doesn't always hit those targets.

If you're looking for entry points

I would take a look at just right where it breaks out these levels or retest those levels.

So this could be your entry point one and two and that might be an excellent level to get in is right after the breakout.

The issue if you get in earlier is --

During this digestion, a pattern sometimes it could turn into a longer consolidation pattern and then it'll roll over.

That's why you typically wait for that high volume.

And once that high volume comes in along with the breakout in price, nice full price bread, that's a much safer entry point.

If you take a look at the bearish case scenario

It's very similar so again. We'll look at this tight pennant pattern, and if I draw it a little bit backward here, you can see we're coming from higher prices. We move lower, and we get this little pause move around in here a little bit. Then you know we break down and move lower.

That's the way it works on the bearish case, very similar to the bullish case just flipped a little bit volume the same thing.

You're looking for a tremendous significant volume anytime that you're moving lower. So that would be high volume, this might be lower volume and then higher volume again on the breakout or the breakdown. Just because still there's more selling pressure that comes in.

Anytime that the movement is strong, just like here, we're moving down anytime the movement is strong. They'll probably get the higher volume.

If you're looking for the entry point

Here for the shorting side, this would be your shorting entry opportunity.

If you're looking to go long on this, I will wait till you follow through and continue all the way down and create a consolidation pattern down here somewhere or find a reversal pattern before you look to enter in an extended position.

But that's the bearish case scenario. The projection on this one is similar to what we do with the bullish. You look from where it started that sell-off to where it began to do the bounce and consolidation pattern. And then, take a look at that and move that range to the next stage from where we're breaking that support level in the pennant.

As far as tips go

Sometimes, these things can look a little more like a sideways digestion pattern.

Sometimes, they might look like this and then move lower. This could be considered maybe a flag like a pattern just because there's not a lot of ticks and not a lot of candlesticks in that area. But again, very similar to the flag pattern.

If you haven't seen that video, take a look at that, but sometimes these can look similar to a flag pattern where they're just a tight consolidation range that's pausing and allowing the stock to continue moving in the same direction. That's why it's a continuation pattern.

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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