Flags
- Flag: A flag is a technical chart pattern that forms after a sharp price movement and appears as a small rectangle with parallel trendlines. This pattern follows a steep upward or downward move, called the flagpole, and represents a short consolidation period where the price moves sideways or slightly against the prevailing trend. Bullish flags slope downward in an uptrend, while bearish flags slope upward in a downtrend, both indicating a pause before the trend resumes.
Impact on Price: When a bullish flag forms, the price is expected to break upward, resuming the bullish trend. The breakout move usually matches the length of the flagpole, resulting in a substantial price increase. Conversely, a bearish flag signals that the price will break downward, continuing the bearish trend with a move similar in size to the previous downward flagpole.
Pennants
- Pennants: A pennant is a continuation pattern that forms after a strong price movement, resembling a small symmetrical triangle as the price consolidates within converging trendlines. Like flags, pennants are characterized by a sharp move followed by a brief period of reduced price range. This pattern signals a temporary pause before the price resumes in the same direction as the prior trend. Pennants are typically shorter in duration than flags but provide a similar forecast for price movement.
Impact on Price: After a bullish pennant forms, the price typically breaks out upward, continuing the previous strong upward trend. The breakout move is generally equal to the length of the flagpole leading into the pennant. In the case of a bearish pennant, the price breaks downward, continuing the downward trend with a sharp move that mirrors the previous downward price action, providing clear direction for traders.