Flags and pennants are common patterns in the market and are pretty similar in appearance, both representing brief pauses before resuming its original trend. They are very reliable continuation patterns and rarely produce a trend reversal.
- First, there is a sharp market move, resembling almost a straight line (flagpole) on heavy volume.
- Prices pause for 1-3 weeks on light volume, forming a consolidation pattern.
- Prices break out and the trend resumes in the direction prior to the flag or pennant on heavy volume.
Both patterns usually appear in the middle of a market move and, therefore, the move after the flag or pennant will travel the same distance of the move preceding the pattern.
The Flag
The flag is shown below, indicated by 2 parallel trendlines in the shape of a parallelogram, which tends to slope against the trend.
The Pennant
The pennant is shown below, indicated by 2 converging trendlines, resembling a symmetrical triangle.
