

Should the pennant be broken tomorrow by price moving decisively outside the upper pennant line, it offers an immediate buy position, but there is a 47% chance price will retest the downward trendline that forms the upper boundary of the pennant. Depending on risk tolerance, one can take a partial position on breakout and increase it on retest, or take a total position on breakout, use a tight stop to get out with minimum loss, then take another total position at the retest point. Often a trend breakout will "peak" above the trendline, then run down another time before actually breaking out. The second graph shows such a peak.
Should the pennant breakout happen, price target would be basically (13.27 - 5.60) + 8.28, or 15.95, similar to the target thought valid for peak 4 of the FAS Cycle Counts entry. There is a 60% chance of making this target, and a 2% chance of failure to make breakeven. Stop losses should be initially set below the downward moving trendline that forms the upper boundary of the pennant. Reward:risk should be easily above the minimum 3:1. To be a valid breakout, the price should close above the upper pennant line, so buying on open is not waiting for pattern confirmation. Truly caveat emptor.
Also, a breakout from a pennant usually happens approximately 2/3rds of the way down the pennant, and if it doesn't, the price usually continues to meander sideways after moving past the end of the pennant. Should that happen here, and it appears it might, the Bollinger bands will probably go into a squeeze, which would be the next potential tradeable pattern. That would be a good thing, too. So, if the price meanders out of the pennant sideways, do not treat it as a pennant breakout.

This is all to say, this formation can end by going up, down, or sideways. How wonderfully enlightening. Here again, successful trading is a matter of going with the odds at positions known favorable, then limiting the inevitable losses to small amounts compared to the inevitable gains.
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