Flag pattern
Family VI · Charts & indicators
Not to be confused with candlestick pattern, chart pattern, engulfing candlestick pattern.
Flag pattern is a continuation chart formation that appears after a sharp, high-volume price move and consists of a small, sloped consolidation bounded by two parallel trendlines. The pattern is completed when price closes outside the consolidation, typically in the direction of the initial move. Flags are studied on bar, candlestick and point-and-figure charts, and their reliability varies with market, timeframe and confirmation rules.
Structure and measurement
A flag has three parts: the flagpole, the sharp directional move that precedes the consolidation; the flag itself, a compact range that slopes against the flagpole; and the breakout, the close beyond the flag boundary. The consolidation usually retraces a fraction of the flagpole, and the two boundary lines are roughly parallel.
A common measurement technique projects the length of the flagpole from the breakout point, though the projected target is an estimate and not a guarantee. Volume often contracts during the flag and expands on the breakout.
Worked example
Confirmation and failure
A flag is not confirmed until price closes outside the consolidation. A close back inside the flag after an apparent breakout is a common failure signal. Traders often place a stop below the flag low for a bull flag, or above the flag high for a bear flag, but the exact placement depends on the instrument and timeframe.
Flags can appear on any timeframe, from intraday to monthly. Their statistical edge varies by market and period, and no flag pattern guarantees a continuation.
Often confused with
- candlestick pattern
- A candlestick pattern is formed by one to three candles and describes a short-term shift in buying or selling pressure, whereas a flag pattern requires a prior directional move and a multi-bar consolidation; the visible sign is that a candlestick pattern is contained within a few candles, while a flag spans many bars.
- chart pattern
- A chart pattern is the broad category of geometric price formations, including flags, triangles and head-and-shoulders, while a flag pattern is a specific continuation formation; the visible sign is that a flag has a sharp flagpole followed by a small parallel channel, which other chart patterns do not require.
- engulfing candlestick pattern
- An engulfing candlestick pattern is a two-candle reversal signal in which the second candle's real body covers the first, whereas a flag pattern is a multi-bar continuation formation; the visible sign is that an engulfing pattern appears as two candles at a turning point, while a flag appears as a sloped channel after a trend.
See also
- forex technical analysis indicators
- price action
- fundamental analysis
- support and resistance
- technical analysis
- fibonacci