The banner of my trading destiny: diving into the "Pennant" pattern

When I first encountered the pennant on the chart, I didn't even understand its significance. Only later, after losing a few trades, did I realize the full power of this little triangle. Let me share my experience with this underrated but powerful trading tool.

A pennant is not just a pretty pattern on a chart. It is a battle flag that a cryptocurrency raises before it surges forward or dives into the abyss. Essentially, it is a consolidation figure that appears in the middle of a trend when the market seems to catch its breath before a decisive move.

Pennant: the essence of the phenomenon

Imagine this: the market has just made an aggressive run, and now traders are confused. Where to next? And now the price starts to swing in a narrow corridor, forming a small symmetrical triangle. The upper line is descending, the lower line is ascending — they converge, as if compressing a spring.

It is damn important to understand that a pennant does not form out of thin air. It must be preceded by a strong impulse — this "flagpole," which I often overlooked at the beginning of my career. Without it, it's no longer a pennant, but something else!

Differences from Other Patterns

Many confuse pennants with wedges and symmetrical triangles. I myself have fallen for this trick! But there are important nuances:

• A wedge can signal both a continuation and a trend reversal, while a pennant signals only a continuation.
• The symmetric triangle is larger and takes longer to form.
• The flag has parallel edges, while the pennant has converging ones.

I remember how once I confused a wedge with a pennant and entered a position, expecting further growth. But the market reversed and took my money. I won't make such a mistake again!

How I Trade Using Pennants

There are three ways to enter by banner:

1. On the breakout of the boundary in the direction of the trend (the most aggressive)
2. On the breakout of the extreme of the entire formation
3. On the rebound after the first breakthrough ( my favorite method )

I usually wait for the price to break out of the pennant and pull back a bit — this provides a better entry point and a smaller stop-loss. Then I measure the height of the flagpole and project it from the breakout point — there you have your target for taking profit.

How reliable is the pennant?

Now for the most interesting part. Murphy exalts the pennant to the skies in his book. But Bulkovski, after analyzing more than 1600 patterns, found that they fail 54% of the time! The average increase after triggering is only 6.5%.

That is why I do not trade solely based on pennants. I always use additional filters — volume, indicators, support/resistance levels. Without this, it is easy to get into trouble, as happened to me at the beginning of my journey.

Bullish vs Bearish

The entry technique is the same for both types, but the strategy is different. In a bullish pennant, I look for long-term buying opportunities, while in a bearish pennant, I look for shorting opportunities. Although it can be difficult to open short positions on some platforms, opportunities exist everywhere.

The main thing to remember is that a breakout should occur no later than three weeks after the pattern is formed. Otherwise, it is no longer a pennant, but something else that requires a completely different approach to trading.

In my practice, pennants work best when preceded by a very sharp and voluminous trend. The more aggressive the initial movement, the more likely a strong continuation after consolidation.