Pennants
Pennants are small continuation patterns that represent brief pauses within an already existing trend. They are characterized by converging trendlines and have a definite bullish or bearish bias depending on the overall trend.
Bullish pennants typically appear in the middle of large rallies or immediately after a stock has broken out of a basing period.
Bullish breakouts should be accompanied by a significant increase in volume. Use appropriate stops if this is not seen.
The price action prior to the pennant formation can be used as a guide in predicting the price movement upon breakout. So, for a bullish pennant in an uptrend to truly possess great potential, it must have been preceded by a significant move (i.e. if the movement into the pattern was quick and full of energy, the rally after the breakout most likely will be quick and full of energy).
The expected price movement upon breakout is approximately equal to the distance of the move into the pattern.
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