Flag Pattern (Flag and Pole Pattern)

A flag pattern is a trend continuation pattern, appropriately named after it’s visual similarity to a flag on a flagpole. Flag patterns can be bullish or bearish.

1. Flagpole: A line extending up from this break to the high of the flag/pennant forms the flagpole. The flagpole is the distance from the first resistance or support break to the high or low of the flag. The sharp advance (or decline) that forms the flagpole should break a trend line or resistance/support level.

2. Flag: A flag is a small rectangle pattern that slopes against the previous trend. If the previous move was up, then the flag would slope down. If the move was down, then the flag would slope up. The price action just needs to be contained within two parallel trend lines.

3. Break: For a bullish flag, a break above resistance signals that the previous advance has resumed. For a bearish flag, a break below support signals that the previous decline has resumed.

4. Volume: Volume should be heavy during the advance or decline that forms the flagpole. Volume contracts during the flag's formation and expands right after the resistance/support breakout.

5. Target: The length of the flagpole can be applied to the resistance break or support break of the flag to estimate the advance or decline.