A "flag" is a chart pattern that looks like a rectangle with a pole on either side. This pattern develops because prices move within a narrow range. Flags identify the currency price’s consolidation that comes before the previous move resumes. A consolidation is the movement of a currency’s price within a specific pattern or barrier of trading levels. The support/resistance levels form the barriers.
There are two types of flags:
Bull Flag - These flags have lower tops and lower bottoms. The trendlines run parallel to the flag, and the pattern slants against the trend. An uptrend leads to the formation of a Bull Flag.
Bear Flag – These flags have higher tops and higher bottoms. The trendlines also run parallel to these flags and they also slant against the trend. A downtrend leads to the formation of a Bear Flag.
The pennant looks like a small symmetrical triangle. It has converging trendlines during its consolidation period. The pennant signals a temporary pause in a strongly trending market. Trading volume usually decreases during the pause and increases after the price breaks out of the pattern. When the pattern is completed the price will move in the same direction as it did before the pattern began.
Pennant patterns are treated like flag patterns because they are very similar in design. They are both considered to be among the most reliable of continuation patterns and they seldom produce a trend reversal. The difference between the two patterns is that a flag pattern is identified by two parallel trend lines that slope against the prevailing trend; while the pennant is characterized by two converging trend lines that slope against the prevailing trend. They both have diminishing trade volume, they usually show up at the same point in an existing trend, and they have the same volume and measurement criteria.
Disclimer: This website is for informational purposes only and is not intended to provide
specific commercial, financial, investment, accounting, tax, or legal advice.
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