Flag and Pennant Patterns: The Short Pause After a Sharp Move

Two parts: the pole and the flag

A flag pattern has two parts. First comes a stretch where price moves a long way, almost in a straight line, over a short period; this is called the flagpole. Price then rests for a while in a narrow range, and because that stretch looks like cloth hanging from the end of the pole, it is called the flag. If the two lines connecting the highs and the lows of the pause are nearly parallel and tilt slightly against the direction of the pole, the shape is a flag; if the two lines draw steadily closer and form a small triangle, it is a pennant, named after the small triangular flag.

• Flagpole: a steep one-way move completed within a few bars
• Flag: a narrow parallel channel tilted slightly against the pole
• Pennant: a small triangle whose two lines converge
• Breakout: the bar that leaves the pause in the direction of the pole

Why it is called a continuation pattern

Textbooks classify flags and pennants as continuation patterns. Calling it a continuation pattern means that the typical case is one where, once the pause ends, price resumes the direction it was moving in before, that is, the direction of the pole. The usual explanation is that after a fast move some traders lock in profits while others step in, so the market is briefly in balance, and when that balance breaks, the earlier move carries on. But this is an explanation attached to a shape, not a sign that the direction is settled. If price leaves the pause against the direction of the pole, the chart is no longer a continuation pattern.

A bull flag, illustrated

The figure below illustrates a bull flag. The part where price, after moving sideways, climbs sharply within a few bars is the pole; the narrow channel that follows, with highs and lows edging slightly lower and retracing only about a third of the pole, is the flag. The typical textbook picture has volume surging while the pole forms, shrinking inside the flag, and rising again on the bar that crosses the upper line. How many times its usual level volume reached during the pole can be expressed the way the Volume Spike Scanner does it: as a multiple of the average volume over the previous 20 bars. The general way to read volume is covered in the article on reading volume.

Measured target: the pole's length from the breakout

The calculation most often quoted for flags is to measure the length of the pole and add it, as is, to the point where price leaves the flag. In the figure the pole rose 30, from 100 to 130, and a close crossed the flag's upper line near 124, so the calculated target is 124 + 30 = 154. Explanations differ slightly on where the pole should be measured from (the bar where the surge began, or the top of the preceding range), and the target shifts accordingly. On volatile coin charts some people measure in percentages rather than price amounts, which gives yet another result. Whichever method you use, it is only a calculation derived from the shape; it does not tell you the probability of price reaching that level.

Bear flags and bear pennants

Reverse the direction and you get the bear flag and the bear pennant. Price falls steeply over a short period to form the pole, rests in a narrow channel that edges upward (bear flag) or a small narrowing triangle (bear pennant), and then breaks below the lower line. The measured target is the pole's length subtracted from the breakdown point. On the downside, the heart of the shape is that the bounce after the drop is weak and short. If the bounce grows large enough to retrace a substantial part of the pole, it is hard to call it a flag, and the interpretation changes as well.

How pennants differ from triangles and wedges

Judged by shape alone, a pennant is a small symmetrical triangle and a flag is a small channel. So what separates them from other patterns is not so much the shape as the pole in front of them and their size. The triangles covered in the triangle patterns article need no pole before them and take longer to form, whereas a pennant attaches briefly to a steep pole. A wedge is a shape whose two lines slope the same way as they narrow, and some explanations call a small wedge that forms briefly after a pole a flag, so the boundary is blurry. Rather than picking a name, it is less confusing to check first whether there was a pole and how short the pause is.

When the flag drags on, it becomes another shape

One condition of the flag that people often forget is its length. Textbooks describe the flag as a short halt in the middle of a fast move, and treat as typical a flag that lasts no more than a few weeks on the daily chart. The longer the pause lasts, the weaker its link to the move that made the pole, and the shape ends up classified under other names such as a range, a triangle or a wedge. Depth works the same way: many explanations say that once a flag retraces close to half of the pole, it is hard to see it as a shallow pause. The name flag fits when the following conditions hold together.

• Slope: did the pole move steeply within a few bars?
• Length: did the pause end quickly (within a few weeks on daily bars)?
• Depth: did it retrace only part of the pole?
• Breakout: did a close cross the line in the direction of the pole?

What this shape does not tell you

Until a breakout appears, a flag is just a correction after a sharp move. If the same shape breaks out against the pole, that sharp move turns out to have been the last leg, and which it was can only be known in hindsight. The statistics this course measured directly on Binance bars cover only candlestick patterns and indicator signals; flags are not among them. Because the sample changes a great deal depending on how you define the pole's steepness and the number of bars in the flag, success rates quoted elsewhere are hard to compare unless you know the definition behind them. When a chart that looks like a flag comes up while you work through the Chart Prediction Quiz, one approach is to compare your own expectation with what actually happened.