Flag

DEFINITION of 'Flag'

A technical charting pattern that looks like a flag with a mast on either side. Flags result from price fluctuations within a narrow range and mark a consolidation before the previous move resumes. Likewise, "pennant" formations are usually treated like flag formations because they are very similar in appearance, tend to show up at the same place in an existing trend, and have the same volume and measuring criteria.

Flag

BREAKING DOWN 'Flag'

Flags and pennants are among the most reliable of continuation patterns and only rarely produce a trend reversal. The only difference between the two patterns is that a flag resembles a parallelogram (or rectangle) marked by two parallel trend lines that tend to slope against the prevailing trend. The pennant, however, is identified by two converging trend lines and more horizontal which resembles a small symmetrical triangle. The important thing to remember is that they are both characterized by diminishing trade volume and though different, the measuring implications are the same for both patterns as demonstrated in the above illustration.

RELATED TERMS
  1. Pennant

    A continuation pattern in technical analysis formed when there ...
  2. Consolidation

    In technical analysis, the movement of an asset's price within ...
  3. Triangle

    A technical analysis pattern created by drawing trendlines along ...
  4. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
  5. Wedge

    In technical analysis, a security price pattern where trend lines ...
  6. Golden Cross

    A crossover involving a security's short-term moving average ...
Related Articles
  1. Forex Education

    Tweezers Provide Short-Term Precision For Forex Traders

    Precise and short, the tweezer setup is similar to the more popular double top/bottom formations.
  2. Forex Education

    Profiting From Carry Trade Candidates

    Capitalize on the yield of the interest rate differential by using flags and pennants.
  3. Charts & Patterns

    Continuation Patterns: Rectangles and Pennants

    Flags and pennants indicate direction of activity of the prevailing trend. Learn how.
  4. Charts & Patterns

    Continuation Patterns: An Introduction

    Those random movements in the charts actually form patterns. Learn the basics of what these patterns are.
  5. Options & Futures

    Trade Forex With A Directional Strategy

    Opening long or short positions to cash in on a trend is one of the simplest ways to trade forex.
  6. Forex Education

    Forex Consolidation Trading - Trade The Calm, Profit From The Storm

    Capture quick profits with the powerful directional biases of these two patterns.
  7. Chart Advisor

    3 Charts That Suggest Now Is The Time To Invest In Real Estate (VNQ, SPG,PSA)

    Real estate assets have some of the strongest uptrends around. We'll take a look at three candidates poised for a move higher.
  8. Chart Advisor

    Stocks With More Upside Due to Bear Traps (TAP, SPY)

    A bear trap is a pattern that typically leads to at least a short-term rise in prices. Here are stocks exhibiting the pattern.
  9. Active Trading Fundamentals

    New Traders: Trade the Market in 5 Steps

    New traders shouldn’t throw money at securities without knowing why prices move. Follow these five steps to tilt the odds in your favor.
  10. Chart Advisor

    Watch For a Bounce in These Emerging Markets (BRF, PEK)

    While downtrends are clearly in control of the direction of many emerging market ETFs, short-term indicators suggest a bounce higher could be in the cards.
RELATED FAQS
  1. What are the most common continuation patterns?

    A continuation pattern is a price action formation indicating that a larger overall trend is pausing in the short term but ... Read Full Answer >>
  2. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  3. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  4. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  5. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  6. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
Hot Definitions
  1. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  2. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  3. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  4. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  5. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  6. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center