Continuous Patterns (Flags and Pennants)

Continuous Patterns (Flags and Pennants)
11/18/2022

💥Flags and Pennants are two chart patterns that can occur during a trend, typically after a significant price movement. They are classified as continuation patterns as they suggest that the previous trend is likely to continue after a brief consolidation.

💥Flags are characterized by a rectangular shape that is formed between two parallel trend lines. The trend lines are drawn to connect the highs and lows of the price movement, creating a flagpole and a flag. The flagpole is the initial price movement, while the flag is the consolidation period that follows. The price tends to break out of the flag in the direction of the previous trend, and traders can use this breakout as a signal to enter or exit a trade.

💥Pennants are similar to flags, but they have a triangular shape that is formed by converging trend lines. The trend lines are drawn to connect the highs and lows of the price movement, creating a pennant pole and a pennant. The pennant pole is the initial price movement, while the pennant is the consolidation period that follows. The price tends to break out of the pennant in the direction of the previous trend, and traders can use this breakout as a signal to enter or exit a trade.

💥💥It's important to note that while chart patterns can be useful in identifying potential trading opportunities, they are not foolproof and should be used in conjunction with other technical indicators and analysis to make informed trading decisions. Additionally, false breakouts can occur, and traders should use stop-loss orders to limit their losses in case the breakout fails.

💥Let me explain the characteristics of flags and pennants. Flags can be thought of as a rectangular flag that is fluttering, while pennants are like a fluttering flag, but in a triangular shape.

💥As shown in the figure above, flags and pennants are a correction of the original trend. For instance, if the original trend is an uptrend, when flags or pennants are formed, the price weakens in a retracement manner before continuing to move in the direction of the uptrend. The movement of the volume traded usually follows the same trend as the price movements. When the volume is rising, the number of volumes also increases, while the number of volumes decreases when the volume is resting. Moreover, the time it takes for flags and pennants to form is usually no more than three weeks.

The example pictures below show flags formed during a big trend and another figure that shows the emergence of patterns, which can occur at any time. From the examples, you can see that the price movement before and after the flag is still in the same direction. That is, if the trend is an uptrend, the price still moves upward, and if it is a downtrend, the price still moves downward.

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