Analyzing Chart Patterns: Flags And Pennants
  1. Analyzing Chart Patterns: Introduction
  2. Analyzing Chart Patterns: Why Charts?
  3. Analyzing Chart Patterns: Head And Shoulders
  4. Analyzing Chart Patterns: Cup And Handle
  5. Analyzing Chart Patterns: Double Top And Double Bottom
  6. Analyzing Chart Patterns: Triangles
  7. Analyzing Chart Patterns: Flags And Pennants
  8. Analyzing Chart Patterns: The Wedge
  9. Analyzing Chart Patterns: Gaps
  10. Analyzing Chart Patterns: Triple Tops And Bottoms
  11. Analyzing Chart Patterns: Round Bottoms
  12. Analyzing Chart Patterns: Conclusion

Analyzing Chart Patterns: Flags And Pennants


By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.com

The flag and pennant patterns are two continuation patterns that closely resemble each other, differing only in their shape during the pattern's consolidation period. This is the reason the terms flag and pennant are often used interchangeably. A flag is a rectangular shape, while the pennant looks more like a triangle.

These two patterns are formed when there is a sharp price movement followed by generally sideways price movement, which is the flag or pennant. The pattern is complete when there is a price breakout in the same direction of the initial sharp price movement. The following move will see a similarly sharp move in the same direction as the prior sharp move. The complete move of the chart pattern - from the first sharp move to the last sharp move - is referred to as the flag pole.

The flag or pennant is considered to be flying at half-mast, as the distance of the initial price movement is thought to be roughly equal to the proceeding price move. The reason these patterns form is that after a large price movement, the market consolidates, or pauses, before resuming the initial trend.

The Flag
The flag pattern forms what looks like a rectangle. The rectangle is formed by two parallel trendlines that act as support and resistance for the price until the price breaks out. In general, the flag will not be perfectly flat but will have its trendlines sloping.

Figure 1: The flag pattern

In general, the slope of the flag should move in the opposite direction of the initial sharp price movement; so if the initial movement were up, the flag should be downward sloping.

The buy or sell signal is formed once the price breaks through the support or resistance level, with the trend continuing in the prior direction. This breakthrough should be on heavier volume to improve the signal of the chart pattern.

The Pennant
The pennant forms what looks like a symmetrical triangle, where the support and resistance trendlines converge towards each other. The pennant pattern does not need to follow the same rules found in triangles, where they should test each support or resistance line several times. Also, the direction of the pennant is not as important as it is in the flag; however, the pennant is generally flat.

Figure 2: The Pennant

General Ideas
While the construct of the pause in the trend is different for the flag and pennant, the attributes of the chart patterns themselves are similar. It is vital that the price movement prior to the flag or pennant be a strong, sharp move.

Typically, these patterns take less time to form during downtrends than in uptrends. In terms of pattern length, they are generally short-term patterns lasting one to three weeks, but can be formed over longer periods.

The volume, as with most breakout signals, should be seen as strong during the breakout to confirm the signal. Upon breakout, the initial price objective is equal to the distance of the prior move added to the breakout point. For example, if a prior sharp up movement was from $30 to $40, then the resulting price objective from a price breakout of $38 would be $48 ($38+$10).

Analyzing Chart Patterns: The Wedge

  1. Analyzing Chart Patterns: Introduction
  2. Analyzing Chart Patterns: Why Charts?
  3. Analyzing Chart Patterns: Head And Shoulders
  4. Analyzing Chart Patterns: Cup And Handle
  5. Analyzing Chart Patterns: Double Top And Double Bottom
  6. Analyzing Chart Patterns: Triangles
  7. Analyzing Chart Patterns: Flags And Pennants
  8. Analyzing Chart Patterns: The Wedge
  9. Analyzing Chart Patterns: Gaps
  10. Analyzing Chart Patterns: Triple Tops And Bottoms
  11. Analyzing Chart Patterns: Round Bottoms
  12. Analyzing Chart Patterns: Conclusion
RELATED TERMS
  1. Flag

    A technical charting pattern that looks like a flag with a mast ...
  2. Pennant

    A continuation pattern in technical analysis formed when there ...
  3. Trade Signal

    A sign, usually based on technical indicators, that it is a good ...
  4. Triangle

    A technical analysis pattern created by drawing trendlines along ...
  5. Red Flag

    An indicator of potential problems with a security. Most often ...
  6. Rectangle

    A pattern formed on a chart where the price of a security is ...
RELATED FAQS
  1. What are the fundamental differences between a pennant pattern and a flag pattern?

    Understand the basics of both the flag and pennant continuation patterns, their similarities and differences, and how each ... Read Answer >>
  2. What are the most common continuation patterns?

    Learn more about three of the most common types of continuation patterns – triangles, pennants and flags -- and how to differentiate ... Read Answer >>
  3. What are the most common continuation candlestick patterns?

    Learn about the four most common types of continuation patterns found in candlestick charts: triangles, rectangles, flags ... Read Answer >>
  4. How are pennant patterns interpret by analysts and traders?

    Understand the basics of the pennant pattern, how it predicts trend continuation, and how analysts and traders identify and ... Read Answer >>
  5. How effective is creating trade entries after spotting a pennant pattern?

    Learn the basics of the pennant pattern and how it is used to create an effective trade strategy, including which factors ... Read Answer >>
  6. How do I implement a forex strategy when spotting a Pennant Pattern?

    Understand the basics of the forex pennant pattern and how to use this indicator to create an effective trading strategy, ... Read Answer >>

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