What defines a pennant pattern in stock trading?

A pennant pattern in stock trading is characterized by a sharp, opposing slope to the preceding trend. This technical pattern forms after a strong price movement, leading to a brief consolidation period. The consolidation results in converging trendlines that resemble a small symmetrical triangle or pennant shape, where the price moves within the narrowing range before breaking out in the direction of the prior trend.

In this context, the opposing slope means that the price moves initially counter to the preceding trend before it resolves. Traders look for this pattern as it often indicates that the prevailing trend is likely to continue after the breakout. The significance lies in the market's psychology, as it reflects a pause or indecision among investors before the resumption of the initial trend.

The other answers do not encapsulate the true essence of the pennant pattern. For instance, a long consolidation period followed by a major breakout is more characteristic of a different pattern called a flag or a broadening formation. The creation of multiple support levels typically describes other patterns like double bottoms or multi-level support scenarios. Lastly, while some patterns do signal reversals, a pennant is primarily recognized for continuation rather than reversal, which sets it apart from those other types of patterns.