Chartered Market Technician (CMT) Practice Exam

What is a key characteristic of a pennant pattern?

1. It follows a trading range

2. It is similar to a symmetrical triangle

3. It indicates market reversal

4. It is formed during high volatility

The correct answer is: It is similar to a symmetrical triangle

A key characteristic of a pennant pattern is that it is similar to a symmetrical triangle. Both patterns are continuation patterns that appear after a strong price movement and indicate a brief consolidation period before the prevailing trend resumes. The formation of a pennant typically features converging trendlines, with the price action narrowing as it progresses toward the point of the pattern. This convergence creates a symmetrical shape that resembles a triangle, which is where the similarity lies. While the other options contain elements that are present in market analysis, they do not specifically define the pennant pattern as accurately. For example, a pennant does not necessarily follow a trading range; it is generally formed after a sharp price movement, not a range-bound scenario. Additionally, while a pennant might suggest continuation of the existing trend—rather than reversal—it does not inherently indicate market reversal as the question suggests. Lastly, although a pennant can occur during periods of increased volatility, it is not restricted to high volatility environments, making this characteristic somewhat misleading in the context of defining the pattern itself.