In crypto trading, the Pennant candlestick pattern is one of the popular trend continuation patterns, signaling a short-term slowdown before a likely move in the previous direction. This pattern is widely used by traders, as it helps to more accurately determine the moments for entering and exiting positions. When used correctly, the pattern can become a tool for increasing profits and minimizing risks.
Characteristics of the model and stages of its formation
The Pennant pattern is formed after a strong impulse price movement and consists of two key elements
The flagpole is the first thing traders notice when observing a pennant. The flagpole is formed as a result of a strong price move that shows that the market is either bearish or bullish.
Triangular contraction - after the flagpole, the price starts to move in a narrowing range, which looks like a mini-triangle. This triangle is the main element of the pattern and symbolizes the consolidation phase, when volatility decreases and the price fluctuates between the resistance and support lines.
Breakout towards the flagpole - the model is considered complete when the price breaks through one of the triangle's borders in the direction corresponding to the initial trend, continuing its direction. The main feature of the model is a gradual decrease in volatility until the price reaches a narrow range.
Where and when can you meet "Vympel" in crypto trading
The Pennant pattern is most often seen on 1 hour to 1 day timeframes on charts of major cryptocurrencies such as Bitcoin and Ethereum. These patterns often form during periods of high market activity, such as before major news releases or during strong price movements. They are most often seen after active price movements in a bull or bear market.
How to use the model to make trading decisions
One popular approach is to watch the pattern and enter a trade after a confirmed breakout. A breakout in the direction of the previous trend indicates a high chance of continuation of the movement, and traders can use this moment to open a position. For example, if a pennant is formed against the background of an uptrend, then an upward breakout often becomes a signal to buy. It is important to remember that false breakouts also occur and can lead to unsuccessful trades, so it is recommended to set a stop loss outside the triangle.
Examples of successful pennants on cryptocurrencies
In February 2021, a classic ascending pennant formed on the Bitcoin chart, which led to continued growth and reaching an all-time high of $58,000. Pennants also appeared on the #ETH chart more than once during its growth in 2021. Such examples show how a correctly recognized pattern can increase trading profitability.
