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• Sharp Move: To be considered a continuation pattern, there should be evidence of a prior trend. Pennants require evidence of a sharp advance on heavy volume. These moves usually occur on heavy volume and can contain gaps. This move usually represents the first leg of a significant advance or decline and the pennant is merely a pause.
• Pole: The pole is the distance from the first resistance or support break to the high of the pennant. The sharp advance that forms the pole should break a trend line or resistance level. A line extending up from this break to the high of the pennant forms the pole.
• Pennant: A pennant is a small symmetrical triangle that begins wide and converges as the pattern matures (like a cone). The slope is usually neutral. Sometimes there will not be specific reaction highs and lows from which to draw the trend lines and the price action should just be contained within the converging trend lines.
• Duration: This are short-term patterns that can last from 1 to 12 weeks. There is some debate on the timeframe and some consider 8 weeks to be pushing the limits for a reliable pattern. Ideally, these patterns will form between 1 and 4 weeks. A pennant more than 12 weeks old would turn into a symmetrical triangle. The reliability of patterns that fall between 8 and 12 weeks is debatable.
• Break: For a bullish pennant, a break above resistance signals that the previous advance has resumed.
• Volume: Volume should be heavy during the advance or decline that forms the flagpole. Heavy volume provides legitimacy for the sudden and sharp move that creates the flagpole. An expansion of volume on the resistance (support) break lends credence to the validity of the formation and the likelihood of continuation.
• Targets: The length of the pole can be applied to the resistance break or support break of the flag/pennant to estimate the advance or decline.