In crypto trading, two technical analysis patterns which are often confused are symmetrical triangles and pennants. In this article, we are going to explain what to look for, what to expect when one is recognised and the difference between the two. To fully understand the information on this post, you will need to know and understand how to read a candlestick chart.
A pennant triangle represents a rest following a sharp move in either direction and lasts only a matter of 1 to 3 weeks. The pennant itself comprises a period of consolidation but the support and resistance lines move closer together (or diverge) as time goes by, thus forming the shape of a triangle. The fact that these 2 levels start to close means that, at some point, there must be a break either above or below the pattern. In terms of structure, a pennant is similar to a bull flag and we can usually expect the result of a pennant to be a continuation of the prior move. If the pennant follows an upward surge, we can expect it to be followed by another surge. If it follows a drop in value, we can expect the price to go decrease even further. Sometimes, the pattern can be broken in the opposite direction, in which case we can consider the pennant invalidated.
A symmetrical triangle (or wedge chart pattern) essentially looks the same as a pennant triangle but doesn’t follow a “flag pole” move. The main difference between this and a pennant is that we have no way of telling in which direction the following move will go until we get a breakout of the pattern. The fact that the pattern narrows forces this breakout to happen.
Unlike a pennant triangle, a symmetrical triangle tends to form over a longer period, typically between 4 and 6 weeks. Once either the support or resistance line is broken, we can expect the price to move in that direction in a move equalling the size of the base of the triangle.
How to trade a Pennant Triangle or Symmetrical Triangle
Both of these technical analysis patterns are considered to have a good degree of reliability. However, it is always advisable to use charting signals in conjunction with one another to strengthen the possibility of predicting what will happen next. It’s always worth increasing your trading knowledge so that you can keep an eye out for other indicators such as dojis or divergence which may further suggest that the triangle is indeed a strong signal.
A pennant triangle and symmetrical triangle both indicate a move equal to the size of the base of the triangle. The difference is that a pennant triangle implies a continuation of the previous move whereas a symmetrical triangle doesn’t indicate a direction until the breakout happens. If you’re just starting out in trading, it might be a good idea to spend the first few weeks observing without actually investing. That way, when you come to buy and sell crypto, you’ll have a much better understanding of what’s likely to happen next in the markets.