On a negative development, a bearish pennant will see a strong decline before consolidating on price for numerous days but on a weaker volume. Then, a second decline will follow to reach new lows. Again, you can find the technical target by taking the breakout level and subtracting the height of the flagpole.
As you may notice, pennants have a similar appearance to that of the symmetrical triangle but are normally a little smaller both in duration and size. Before an increase on the breakout, the volume will normally contract whilst in the pause section.
Flagpole - Measuring the distance between the low or high of the flag/pennant and the first resistance, the result will be the flagpole. The trend line or support level should be broken by the sharp movement (decline or advance) that first forms the flagpole and it is formed by the line extending from the high of the flag/pennant to the break.
Sharp Move - If there is evidence of a trend prior to the move, it can be considered a continuation pattern. With heavy volume, a sharp decline or advance has to be seen for pennants and flags. Whilst they contain gaps, they normally also occur with heavy volume and the move will normally be a sign of bigger movements in the future. With this in mind, the pennant or flag represents the slight pause before continuing.
Flag - Sloping against the trend previously, a flag marks a small rectangle pattern. For the flag to slope down, the previous move would have to be up and vice versa. Normally, the price action would have to be contained with two parallel lines since flags are generally too short to measure accurately.
Pennant - As a small symmetrical triangle, a pennant will widen before converging as the pattern ages. Usually, the slope will be neutral and there isn't always a reaction low or high. With this in mind, the trend lines can sometimes be hard to draw and the price action will stay between the two lines.
Break - When the break occurs above resistance, it signals that the previous advance has continued for a bullish pennant or flag. When the break occurs below support, this signals that the previous decline has continued for a bearish pennant or flag.
Duration - Typically, these are short-term patterns that will not last any longer than twelve weeks. In an ideal situation, they will form in the first four week. As soon as it hits the twelve week mark, a pennant is considered a symmetrical triangle and a flag is considered a rectangle. For this reason, many experts question the reliability of the data after eight weeks.
Targets - In order to estimate the decline or advance, the resistance or support break can be applied to the total length of the flagpole.
Volume - During the decline or advance phase, the volume should be heavy in order to form the flagpole. When the volume is heavy, this provides a certain level of legitimacy for the shape movement. When the volume expands, the likelihood of continuation increases.