Recently, I noticed that many beginners in crypto trading overlook one of the most useful patterns — the pennant. It’s truly an interesting consolidation figure that helps understand when a trend might continue its movement.

A pennant forms roughly in the middle of an emerging trend, usually over a couple of weeks or slightly longer. It looks like this: first, there is a sharp and steep rise (or a decline in a bearish market), then the price begins to trade within a narrow range, taking the shape of a small symmetrical triangle. Two trendlines form the boundaries of this triangle — the upper trendline slopes downward, the lower trendline slopes upward, and they converge at a point.

What distinguishes a pennant from other patterns? First, it is always preceded by an aggressive move — the flagpole. This can be a sharp rise or fall with good volume. Without such a preliminary impulse, a pennant simply won’t be a pennant. The second difference is size. A pennant is smaller than a symmetrical triangle and requires this strong preliminary move. A wedge, on the other hand, can form without a flagpole.

Now, about the most interesting part — the breakout. Usually, the price breaks out in the direction of the original trend. If there was an uptrend, expect a breakout upward. If there was a downtrend, expect a breakout downward. This is where real trading begins. You can enter in several ways: right at the level breakout, or wait for a pullback and enter on the continuation. Some prefer to enter immediately, others catch the second wave.

Volume plays a key role here. During the formation of the pennant, volume should decrease — the price is “taking a break.” But when the breakout occurs, volume should sharply increase. This signals that the movement will be sustainable.

How to measure the target? Take the distance from the start of the flagpole to its extreme point (the maximum during an upward move or the minimum during a downward move), then project this same distance from the breakout level. It’s logical to place the stop just beyond the opposite trendline.

But be honest with yourself — a pennant is not a panacea. Studies show that approximately 54% of breakouts are false. Successful upward moves trigger about 35% of the time, downward about 32%. The average movement after the trigger is around 6.5% of the initial impulse. Therefore, risk management is critical. Use stops, don’t risk everything on one trade.

Bullish pennants work in an uptrend — after consolidation, the price continues to rise. Bearish pennants, on the other hand, occur during a decline and signal a continuation of the downtrend. The trading approach is the same in both cases; only the position direction changes.

It’s best to combine the pennant with other technical analysis tools. Pennants on short-term timeframes are quite common, so if you’re looking for active trading, this could be your pattern. The main thing is to remember that the quality of the preceding trend determines the strength of the subsequent move. The more aggressive the flagpole, the more powerful the breakout usually is.