In the context of , a flag is a price pattern that, in a shorter time frame, moves counter to the prevailing price trend observed in a longer time frame on a price chart. It is named because of the way it reminds the viewer of a flag on a flagpole.
The is used to identify the possible continuation of a previous trend from a point at which price has drifted against that same trend. Should the trend resume, the price increase could be rapid, making the timing of a trade advantageous by noticing the .
A , in , is a price chart characterized by a sharp countertrend (the flag) succeeding a short-lived trend (the flag pole).
Flag patterns are accompanied by representative indicators as well as price action.
Flag patterns signify trend reversals or breakouts after a period of consolidation.
How a Works
Flags are areas of tight consolidation in price action showing a counter-trend move that follows directly after a sharp in price. The pattern typically consists of between five and twenty price bars. Flag patterns can be either upward trending ( ) or downward trending ( ). The bottom of the flag should not exceed the midpoint of the flagpole that preceded it. Flag patterns have five main characteristics:
The preceding trend
The consolidation channel
A confirmation where price moves in the same direction as the breakout