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How the Pennant Pattern Works

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optionstrategies
How the Pennant Pattern Works

Traders pay close attention to pennants and flag pattern when trading. Both are very similar in terms of structure, and it may take some practice before an investor can readily tell the difference between the two. These short-term patterns that last only a two to three weeks in length can be indicated by an initial significant volume move followed by a tapering off period.  pennant trading strategy Then another strong volume increases at the end as the break out occurs.

Investors can use this pattern to help figure out how high the stock will advance by taking the price at the bottom of the “flag pole” in the initial pattern, then waiting until the price consolidates. synthetic stock  Once consolidated, the stock or index will break out at a slightly higher level, and if you take the price at the bottom and add it to the break out price, this will give an excellent indication of the future price action for the pattern.

For instance, if you have a stock whose price at the base of the “flag pole” was $10 and it rose aggressive to $20, long straddle  then consolidated to $18.50 where it sits for a while before breaking out at $19.00. Investors can figure the approximate top for this pattern by taking the initial $10 and adding it to the $19.00, which gives one a $29.00 target to hit for the price on this stock for this particular pattern. Typically, investors will use this pattern in conjunction with other indicators to boost their chance at an accurate forecast.

Most traders don’t use pennants on their own but combine them with other technical analysis indicators so that they don’t get faked out or get duped into making a bad trade.

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