Consolidation Chart Patterns – Pennants

A pennant is a charted pattern where lower highs and higher lows are formed. Eventually prices converge and break out occurs in the direction of the prevailing trend. A sure sign that a pennant is being formed is when the series of lower highs and higher lows are accompanied by decreasing volatility.

How option traders can make use of pennants?

In a pennant that is forming, a breakout could occur within a short period of time. With volatility decreasing, an options trader may take advantage of decreased lower volatility to initiate a straddle. With a breakout and a significant movement in price, the option trader can earn a profit.

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