I've noticed that many beginners in crypto trading overlook one of the most reliable technical analysis patterns — the pennant. This is a consolidation figure that appears roughly in the middle of an emerging trend and provides a clear entry signal. Interestingly, the pennant pattern forms quite quickly, usually within a couple of weeks, at most three, and is often visible on short-term timeframes.

How does it work? First, there's a sharp, steep rise (bullish market) or fall (bearish market) — this is the flagpole. Then, the price begins to trade within a narrow range, forming a small symmetrical triangle. The upper boundary slopes downward, the lower boundary slopes upward, and they converge at a point. When the price breaks through this boundary in the direction of the original trend, it triggers an entry signal.

During the formation period, volumes should decline, but once a breakout occurs, volume sharply increases — this is already a serious signal. I’ve noticed that the aggressiveness of the previous trend is key to what to expect next. If there was a powerful move before the pennant, the breakout is usually stronger.

There is interesting data on the reliability of the pennant pattern. John Murphy, in his classic book on technical analysis, considered it one of the most reliable continuation patterns. But Thomas Bulkowski conducted a more thorough study on over 1,600 examples and obtained different results: the failure rate of breakouts was about 54% in both directions, and the success probability was around 35% for upward moves and 32% for downward moves. The average move after the trigger was approximately 6.5%. This shows why risk management is so critical.

There are several ways to enter. You can enter at the initial breakout of the boundary, wait for a breakout of the high or low of the pennant, or wait for a small pullback and trend continuation. To measure the target, take the distance from the start of the flagpole to the top or bottom point, then project that same distance from the breakout level.

A bullish pennant begins with a sharp rise, and a bearish one with a sharp fall. After the consolidation period, the price either continues to rise or falls further. The trading approach is the same for both — just the direction differs: long for bullish, short for bearish.

What’s important to remember: the pennant pattern is a short-term pattern that should be completed within three weeks. If it drags on longer, it may turn into a larger pattern or simply fail. The quality of the preceding trend determines everything. If there was sluggish trading before the pennant, don’t expect a powerful breakout. But if there was an aggressive move — then it’s worth paying closer attention to the signal.