Pennant Pattern: How To Identify Pennants On A Crypto Chart?

The technical analysis of the crypto charts encompasses multiple patterns, flags, and other aspects confirming the future movement of the coin. The patterns have given results in the past to stock and commodity traders across the world. We will discuss pennant patterns among other patterns such as cup and handle, head and shoulder. The article will discuss what the pennant pattern means, the bearish pennant pattern, and the bullish pennant pattern. So, let’s begin. 

Key Takeaways 

• The pennants pattern features a breakout after a period of consolidation.
• The volume of a pennant is crucial to monitor because breakouts may occur on higher volumes during the consolidation phase and vice versa.
• Most crypto traders use pennants in conjunction with other technical analysis techniques to land on a more accurate coin movement.

What does the pennant pattern mean? 

A sequence-based continuation pattern known as a pennant is used in technical analysis. The crypto chart initially shows a flagpole pattern. Later, a pennant formation results from a consolidation period with convergent trend lines. Additionally, it is followed by a breakout movement that points in the same general direction as the first big movement, which stands for the other half of the flagpole. The pennant pattern can further be identified in bullish and bearish pennants. 

• Bullish pennant pattern: A sharp upward price movement will likely continue in the near future. Technical analysts interpret this as a signal for the continuation of the initial ascending price move. The bullish pennant pattern can give traders a glimpse of significant Crypto price movement to the upside. This pattern forms when a market makes a significant upward move, pauses, and then consolidates in the vicinity of converging support and resistance lines. 
• Bearish pennant pattern: It suggests that a price move in the negative direction will soon continue. Technical analysts interpret the presence of a bearish flag pennant as a signal that the market will continue to move lower once it breaks through its support level. They are essentially the opposite of bullish pennants in that the market pauses on a significant move down rather than consolidating after a move up. Bearish pennants are similar to their counterparts in that they can appear anytime.

Bullish vs bearish pennant chart patterns

Example of pennant chart pattern 

The graph below displays a flawless pennant pattern. As shown by the optimism coin in the chart, a pennant pattern is forming in the daily time frame chart. The pattern begins with a strong rally that acts as the pole, and is then followed by a quick consolidation between two trendlines of convergence.

This consolidation should theoretically provide coin buyers with a brief respite during which they can rekindle the bullish momentum. The coin price consequently rose by 4.87% and crossed the trendline as mentioned above. This breakout indicates relief from the accumulated buying pressure and signals the resumption of the bullish trend.

How to trade in crypto with a pennant trading pattern?

The two most essential steps in cryptocurrency trading are identifying the formation and correctly predicting the breakout point. After a pennant breakout, most traders look to enter short or long positions. For instance, a pennant trader might observe the formation of a bullish pennant. This could limit the buy order to just above the upper trendline of the pennant. The trader may be keeping an eye out for volume that is above average and supports the pennant pattern once the security crosses over this upper trendline. A pennant pattern has formed when volume increases, and traders can now hold positions until the coin reaches the predetermined target price.

The target price for pennants is determined by dividing the price at which a share exceeds or “breaks out” of the pennant by the height of the flagpole. For example, picture a sudden increase from $80 to $120. The token consolidates when it reaches $85, then breaks out of the pennant at $100. A trader using technical analysis on a pennant pattern would look for a target price of $180, or 80 plus $100. Trading participants set their stop-loss orders at the pennant’s lowest point on the chart. The pattern would be invalidated by a break below these low levels, which could also herald the start of a long-term price reversal.

Furthermore, traders combine the pennant pattern’s technical analysis with other chart patterns. For instance, one can watch these levels during consolidation and wait for them to level off using a relative strength index, or RSI. As a result, there may be a higher move. Another possibility is that the resistance levels of the trendline will be close to the area of consolidation for the price. If this area breaks out, it will create a brand-new support level.