A continuation pattern that looks like a small rectangle sloping against the prevailing trend after a sharp move.
Deep Dive
The flag pattern is a powerful continuation pattern that forms when price makes a sharp, strong move (the flagpole) followed by a brief consolidation (the flag) that slopes against the trend. Bull flags slope downward after a rally; bear flags slope upward after a decline.
Flags represent brief profit-taking pauses within strong trends. The sharp initial move (flagpole) indicates strong momentum. The shallow, counter-trend consolidation shows that sellers (in an uptrend) or buyers (in a downtrend) cannot make significant progress. When price breaks out of the flag in the original trend direction, the move typically continues.
Flags are characterized by parallel trendlines forming the consolidation channel. The pennant variation has converging lines instead of parallel. Both are reliable continuation patterns. The measured move target is the flagpole length projected from the flag breakout point.
Why It Matters
Flags signal brief pauses in trends before continuation in the original direction.
Related Terms
- Breakout — A price movement through a defined support or resistance level with increased volume, signaling potential trend continuation.
- Trend — The general direction in which the price of an asset is moving. Trends can be upward (bullish), downward (bearish), or sideways (ranging).
- Triangle Pattern — A continuation pattern formed by converging trendlines, categorized as ascending, descending, or symmetrical.