In technical analysis, the pennant is a continuation chart pattern moulded when there is hefty movement in a currency or security followed by a consolidation period with layer trend lines, the flag, which is followed by a breakout movement similarly as the original massive movement.
In the consolidation period the covering trend lines, the pennants are similar to a flagpole in term of structure which usually lasts from one to three weeks. The volume of covering trend lines at each period is also essential. The initial move must be large while covering trend lines should have flagging work followed by a massive movement during the breakout.
Usually, many forex traders look to place long or short positions after the breakout from the pennants chart pattern. For example, a trader observes a pennants charts pattern and place a buy limit order just above the pennants upper trend line. If security breakout, the trade will be executed, and a trader may look to hold the position until security reaches its target price.
The target price is often established by measuring the height of the massive initial movement to the point of the consolidation period. For example, if security rises from $10 to $20 and start consolidation period around $18 and then breakout at $19, a trader might set $29 target price ($10 plus $19). Usually, the stop-loss order is placed at the lowest trend line of the pennants chart pattern, since breakout from these points would undermine the shape and could mark the beginning of long term reversal.
Usually, most of the forex traders use pennants chart pattern in conjunction with other technical indicators that serve as confirmation of a genuine or fake breakout. The formation of pennants chart pattern at significant support or resistance level also helps the trader to make the best trading decision. Any breakout above the resistance or below the support level opens a door for higher movement in the price of a security.