Chartered Market Technician (CMT) Practice Exam

What are symmetrical triangles shorter than three weeks commonly categorized as?

1. Flags

2. Wedges

3. Pennants

4. Channels

The correct answer is: Pennants

Symmetrical triangles that are shorter than three weeks are commonly categorized as pennants. This technical pattern typically forms after a strong price movement and is characterized by converging trendlines that create a small, triangular shape. What distinguishes pennants from other patterns like flags is their shorter duration and the fact that they occur in a volatile market after a notable price action, serving as a brief consolidation before the price continues in the direction of the prevailing trend. The key to understanding why this classification matters lies in the pattern's implications for traders. Pennants suggest a continuation of the prior trend and therefore can indicate potential future price movements, providing traders with an opportunity to enter positions in the direction of that trend. In contrast, flags have a specific angle, wedges imply a reversal or consolidation, and channels involve parallel lines without the convergence typical of triangular formations.