Chartered Market Technician (CMT) Practice Exam 2026 – Your All-in-One Guide to Exam Success!

A pennant is recognized as a continuation pattern in technical analysis, typically occurring after a sharp price movement, either upward or downward. This pattern forms when the price creates converging trendlines, suggesting a period of consolidation before the market resumes its prior direction. The formation of a pennant indicates that, despite the temporary pause in price action, there is still momentum in the original trend, and traders can often anticipate a breakout in that same direction following the consolidation phase.

The rationale behind describing a pennant as a continuation pattern lies in its relationship to the price movements that precede it. After a significant price change, the resulting pennant formation suggests that traders are taking a breather, reassessing the market, and gathering energy for the next move. Once the price breaks out of the pennant pattern, it often does so in the same direction as the previous trend, confirming the continuation of that trend.

In contrast, a reversal pattern is characterized by a change in the prevailing trend, and while other options may describe different situations or structures seen in price charts, they do not accurately define the nature of a pennant formation. Understanding this is crucial for traders who utilize technical analysis tools to predict future price movements based on historical patterns.