The formation of the “Flag” and indicators are closely interrelated.
It usually happens like this:
1) The formation of a flagpole in a fast market is accompanied by an increase in indicators. Panic buy or panic sell pushes the price up / down the quickly.
2) During the further formation of the figure, the indices gradually fall. There is a correction process (consolidation of prices within trends), and none of the market participants will ever go against the main trend. For this reason, the “Flag” usually leans in the opposite direction of the main trend. But it usually does not last long.
3) At the time of breaking through the figure, the figures increase sharply, indicating a continuation of the previous trend. There is momentum, the trend continues.
If, during the formation of the figure, the indicators increase in the direction of the trend and fall when moving against the trend, then this is a good signal that the price will break the figure in the direction of the main trend.
“Bull flag” and “bear flag” are one of the main figures of the continuation of the trend in . Usually on the graph it resembles a parallelogram inclined against the previous trend. By the nature of the construction, it most of all resembles the “pennant” figure, since it is formed after the rapid previous trend and has a flagpole. But unlike the “Pennant” figure, the “Flag” figure has lines parallel and they resemble a trend channel located at an angle (only short).
The flag is considered to be a strong figure, so a change in the trend in this figure is very rare.
It is believed that the flagpole should be steep to the rise, and its length should be twice the width of the base of the flag.
Interestingly, this pattern can occur several times within the same time scale. Its appearance means that the movement of the trend will continue in the same direction as it was.
Features of the formation of the “Flag”:
1) The appearance of the figure is preceded by a sharp price movement in the form of an almost straight line, and accompanied by a large of trade.
2) In the process of forming a figure, the indices gradually decrease.
3) Very often the “Flag” is formed around the middle of the price movement.
4) The “Flag” is very similar to a small parallelogram, inclined in the opposite direction of the trend.
6) “Flag” are formed faster in a bear market.