Pennants, the Worst Reliable Price Action Patterns

A recent study by Cody Hind (2020), tested 10 years of data and over 200,000 trading patterns, in order to evaluate their reliability. Hind included in the study only those price action patterns considered to be ‘complete’, which means they fully broke a support/resistance area or trendline.

Hind’s evidence showed that the Head and Shoulders Pattern is the most reliable pattern, with a success percentage of 83.04% and the Inverted Head and Shoulders Pattern with a percentage of 83.44% but also that the Bullish Pennant Pattern is the worst reliable pattern, with a success percentage of 54.87% and the Bearish Pennant Pattern with a success percentage of 55.19%.

Hind included the analysis of these two patterns because of of their comparatively poor performance despite being commonly used. The pennant pattern is one that traders often observe right next to the bull and bear flag pattern in the textbooks, but “rarely does anyone talk about its low success rate”, Hind argues. While the flag itself isn’t an exceptional pattern at just under a 70% success rate, the pennants come in well below that.
Like flags, pennants often occur in high momentum markets, for instance after a strong trending move, but the tight price formation that occurs can lead to breakouts against the preceding trend almost as often as we get continuation. The slight difference in the price pattern formation between flags and pennants is an important distinction that can make a big difference in trading results so it’s well worth being aware of it while watching the market develop during traders’ activities.

Related Articles

Crypto carry trade (part one)
The current international monetary environment is characterized by ultra-expansionary monetary policies undertaken by…

Read more >
Passive and Aggressive orders
In forex trading, traders often use passive and aggressive orders in their daily…

Read more >
The Rate-of-Change (ROC)
In the technical analysis of forex markets, the Rate-of-Change (ROC) is a momentum…

Read more >