Flag Pattern in Technical Analysis [Trading Guide]

Written by Navdeep Singh in Chart Patterns

In capital markets, periods of price consolidation are a common occurrence after any sharp increase or decreases in the price of a security. If you had a way to determine when these consolidations will result in the continuation of the prevalent trend, and not a reversal, you can amass significant profits by trading these consolidations. While there is no crystal ball for trading and there is nothing guaranteed in trading the markets, but this is where knowing various chart patterns can give you a considerable edge. One chart pattern that provides meaningful insights into the potential future market performance during such consolidation periods is the Flag Pattern.   

The Flag Pattern is a continuation pattern that is characterized by a period of tight consolidation in the price movement of a security. The security’s price is expected to continue its original direction, after a brief counter-trend created in the development of this pattern.

Flag patterns are easily identifiable on any security’s price chart. Technical traders from all asset classes, such as – stocks, Forex, cryptocurrencies, etc. – commonly leverage these patterns within their overall trading strategy. According to a recent study, identifying this pattern is extremely useful in trading securities that have just issued their Initial Public Offering (IPO). The brief counter-trends created by these patterns are easy to identify, as the initial high-volume trading consolidates among initial bulls. This gives new investors the chance to enter the market and profit from a continuation in the security’s price trend.

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Types of Flag Pattern

The Flag Pattern gets its name because it looks very much like a flag flickering on a flagpole when the trendlines are traced on the price chart.

The prevailing trend of the security’s price serves as the pole, while the period of consolidation (also known as retracement period or counter trend), serves as the flag. This is true in scale as well, as the “pole” is considerably larger than the “flag.”

There are two types of flag patterns the trader must be able to identify. These are –  

  • Bullish Flag Pattern
  • Bearish Flag Pattern

Both these patterns behave in fundamentally the same way, offering short periods of slower trading amid aggressive and high-volume exchange.

Bullish Flag Pattern

The Bullish Flag Pattern occurs in securities that experience some pullback after an uptrend or a strong run of price increases. This will see a pole formed as prices move up the chart, followed by a brief consolidation during the formation of the flag.

The bullish flag pattern is extremely common in IPOs. Stocks will see consistent increases in price due to the enthusiasm following the listing, followed by a pullback as investors take some time to reassess the value of the stock. This then leads to the fear of missing out (FOMO) crowd jumping in and getting the price to take off again.  

Bearish Flag Pattern

A bearish flag pattern looks very much like the bullish flag pattern, only with a different orientation. Some may argue that it looks more like a hockey stick than a flag.

The pole is formed from consistent, high-volume selling, followed by a counter trend that sees some traders jump in to drive the price up slightly, creating the flag in the pattern.

Bearish flag patterns frequently occur in stocks of companies that are past their maturity stage. Investors see limited upside, so they sell heavily, forming the pole. Some buyers jump in who believe they are getting good value, only to sell shortly after that to capture profits, continuing the bear (selling) trend of the stock. 

Identifying Flag Pattern

To properly capitalize on buy and sell opportunities when trading flag patterns, you must be able to quickly and accurately identify the formation of flags and distinguish them from other chart patterns to avoid making decisions based on false signals. 

There are two ways for you to correctly identify a Flag Pattern: 

  1. With Geometry and Shape Recognition
  2. With the Use of Technical Indicators and Tools

In this section, we will cover both these aspects to help correctly identify and trade the Flag Pattern. 

Identifying Flag Pattern Using Geometry and Shape Recognition

The flag pattern consists of three primary components: the pole, the flag, and the breakout region. Each part has some very identifiable characteristics:

  • Pole – This is a single trend line that moves distinctly up (in the case of a Bullish Flag) or down (in the case of a Bearish Flag) the security’s price chart. The pole will feature minimal deviation from the trend line, making it very consistent and easy to trace on the price chart.
  • Flag – This is marked by a noticeable retracement of the security’s prevailing trend. It is formed by tracing trendlines across the support and resistance levels of the consolidation. In the case of the Flag Pattern, these trendlines do not get closer and run parallel to each other, unlike those formed in a pennant or triangle pattern.
  • Breakout Region – This is when the price breaks through the resistance (in the case of a Bullish Flag) or the support (in the case of a Bearish Flag) level formed during the consolidation period, or Flag formation. It will be marked by a strong movement in the same direction as the more prevailing earlier trend.

Identifying Flag Pattern Using Technical Indicators and Tools

While the flag pattern is quite recognizable from merely observing a security’s price chart, there are several indicators that every flag pattern exhibits that can help the trader confirm that a flag pattern has, indeed, formed:

  1. Preceding Trend – This forms the pole in the flag pattern. The trader may use a tool such as a 50-day moving average to help identify a security’s momentum and see if this indicator is harmonious with what he or she sees on the price chart.
  2. Consolidation Channel – This is the flag formation in the pattern. When the trader notices this retracement, he or she may turn to some convergence and divergence indicators, as the resistance and support lines will not converge in a true flag pattern. This period typically lasts between five and 20 trading sessions.
  3. Volume Pattern – Traders need to understand volume metrics to identify a flag pattern. The volume will be very high during the formation of the pole. The flag will experience a period of low volume as traders reassess their positions. Any upticks in volume back to previous levels should indicate the pattern has been completed.
  4. Breakout – This occurs when the price continues in the same direction as before the formation of the flag. If the flag could be removed from the chart and the pole and breakout time shifted together, it would appear to be a nearly straight line with a small gap in it.
  5. Confirmation – This is a period when the price continues to move in the same direction as the breakout and previous trend. The general rule, that many traders use, is that this period will be roughly the same size as the pole was before the formation of the flag.

Interpreting Flag Pattern 

To correctly interpret the Flag Pattern, you must understand the psychology of the broader market that results in the creation of this pattern. In essence, there are three phases of market psychology that result in the development of a Flag Pattern on the price chart of a security.

These three psychological phases that result in the emergence of a Flag Pattern are listed as follows –

  1. Phase-1: Development of Flag Pole
  2. Phase-2: Development of Flag 
  3. Phase-3: Price Breakout from Flag 

By understanding the psychology behind these patterns, you can identify the most opportune times to buy in at a value and sell at a profit. So, without further ado, let us jump straight into these market psychology phases that result in the development of the Bullish and the Bearish Flag Patterns.

Market Psychology: Bullish Flag Pattern  

The three phases of market psychology that result in the development of the Bullish Flag Pattern can be described as follows –

Phase-1: Development of Bullish Flag Pole

In the case of a Bullish Flag Pattern, traders are very hungry to buy up as much of a favorable security as possible. This high volume of buying causes the price of the security to move consistently higher and higher. This results in a considerable bullish movement in the security’s price, and hence the Bullish Flag Pole is formed. 

Phase-2: Development of Bullish Flag

During the formation of the Bullish Flag Pole, the price of the security being traded observes significant growth. Eventually, the pressure to sell at such favorable prices outweighs the desire to buy more. Hence, traders start to book profits on trades that they took during the pole formation phase, and consequently, some volume of the security is sold off. This results in some downward retracement in the price, which leads to the development of a Flag like structure.

Phase-3: Price Breakout from Bullish Flag

The pullback in security’s price during the Flag development phase is extremely enticing to the investors who had been sitting on the sidelines during the earlier phases of pattern development. Hence, a large number of new buyers rush into the market. This results in the breakout of the Flag and the continuation of the uptrend after a brief period of consolidation; thereby completing the Bullish Flag Pattern.

Market Psychology: Bearish Flag Pattern  

The three market psychology phases that result in the development of the Bearish Flag Pattern can be described as follows –

Phase-1: Development of Bearish Flag Pole

In the case of a Bearish Flag Pattern, large quantities of a security that investors no longer feel has an upside are being sold. This high volume of selling leads the price of the security to move lower and lower, resulting in the development of the Bearish Flag Pole.

Phase-2: Development of Bearish Flag

There is a significant decline in the price of the security during the development of the Bearish Flag Pole. Eventually, the price reaches a point where some investors sitting on the sideline feel like the price of the security is too good to pass.  Hence, the rampant selling slows as some buyers jump in, resulting in the formation of a Flag like structure in this bearish pattern.

Phase-3: Price Breakout from Bearish Flag

The upward retracement in security’s price during the development of the Bearish Flag prompts bearish shareholders to start shorting (selling) the asset at a higher price. This flurry of short-sellers results in a breakout and retriggers the previous downward price trend; thereby completing the Bearish Flag Pattern.

Improving Reliability of Flag Pattern in Trading

Even though the Flag Pattern is very prominent and consistent across a wide array of securities to predict future performance, it is not infallible. In addition to that, structurally, it can be easily confused with other chart patterns, such as the Double Top and the Double Bottom Pattern, that require a very different trading approach. Therefore, to improve the reliability of your trade entries with a Flag Pattern, it is essential to pair it with some other complementary technical analysis concepts.

Several tools within technical analysis that can be combined with the Flag Patterns to improve the reliability of trade entries using these patterns are as follows –

  • Japanese Candlestick Patterns
  • Harmonic Patterns
  • Moving Averages, Momentum Indicators and Divergence 
  • Volume Indicators
  • Eliminating Possibility of Other Chart Patterns

Now, without further ado, let us discuss how you would leverage each of these above-stated tools in combination with your strategy to trade the Flag Pattern. 

Japanese Candlestick Patterns 

The reliability of the Flag Pattern can be significantly improved by incorporating Japanese Candlestick Patterns into your pattern trading strategy. Essentially, there are two ways in which the Candlestick Patterns can be incorporated into your strategy to trade the Flag Pattern. These are –  

  • Identifying Trend Reversal Zones: When swing trading the Flag Pattern, you would often need to identify the potential price reversal points to trade the internal wave structure of a flag pattern. In scenarios such as these, various Candlestick Patterns, in particular – the Reversal Candlestick Patterns, can come in very handy to identify the trade entry points. 
  • Breakout Confirmation: When trading Breakouts using the Flag Pattern, you can leverage the Continuation Candlestick Patterns as breakout confirmation signals. These confirmation signals can significantly improve the success probability of the breakout trades that you enter using the Flag Patterns. 

Harmonic Patterns

Harmonic Patterns in technical analysis provide you with a very reliable prediction on upcoming price waves on the price chart of a financial instrument. Thus, when employing Harmonic Patterns into your trading strategy, you already have a strong sense of direction and the magnitude of the upcoming price movement. When these insights from plotting the Harmonic Patterns are combined with the Flag Pattern trading strategies, your probability of trade success can increase multifold. Hence, signals from these patterns are very complementary to most Flag trading strategies.

Popular examples of few commonly occurring Harmonic Patterns that are known to work great with the Flag Patterns are as follows – 

  1. Gartley Pattern
  2. Bat Pattern
  3. Crab Pattern
  4. Shark Pattern

Moving Averages, Momentum Indicators and Divergence

Moving averages are a great way to check and see if the trend of the flag pattern’s pole is moving in the same direction as what meets the eye when looking at the chart. Additionally, the longer period moving averages, such as a 200 period SMA or EMA, can also serve as dynamic support and resistance levels in trading the Flag Patterns. 

To further improve the reliability of a Flag Pattern, you may also want to look into using some moving average based momentum indicators that can measure convergence and divergence. True Flag Patterns maintain a strong divergence between the resistance and the support levels of the flag. This can serve as a strong confirmation signal that the pattern you are looking at is a true Flag Pattern. 

Examples of such moving average and momentum indicators that can help you measure divergence include the MACD, the RSI, the Stochastic Oscillator, etc.

Eliminating Possibility of Other Chart Patterns

Last, but not the least, it is extremely important that you rule out the possibility of other chart patterns that might be in development when trading the Flag Pattern. During the initial phases of pattern development, Flag Pattern can mimic the structure of several other patterns, such as the Double Bottom and the Double Top Pattern. 

While most chart patterns work in a similar way, the insights that they provide and the strategy to trade them can greatly vary. 

For example – the Bullish Flag Pattern is a continuation pattern and the Double Top pattern is a reversal pattern. During their early development phase, both these patterns look alike, but the insights that they provide on the potential future price movement is very different. While the Bullish Flag pattern suggests the continuation of the positive price movement, the Double Top pattern indicates an upcoming reversal in price trend.

Hence, for entering higher success probability trades using the Flag Pattern, it is extremely important to rule out the possibility of other patterns that look similar to the Flag Patterns during the pattern’s initial development phase.

Trading Flag Pattern

Now that you know how to identify a Flag Pattern and understand the market psychology behind its formation, it is time to put this knowledge to use and make profitable trades using this pattern.

There are two strategies that I have personally found to work really well for trading the Flag Patterns. These are – 

  • Flag Pattern Breakout Trading Strategy
  • Flag Pattern Swing Trading Strategy  

Now, without wasting any more time, let us dive deep into both these trading strategies.   

Trading Strategy-1: Flag Pattern Breakout Trading Strategy

With the Flag Pattern being a continuation pattern, the classic breakout trading strategy is unsurprisingly one of the most popular and profitable ways to trade it. This is because the consolidation period of this pattern gives traders every reason to believe that the security’s price will continue in the direction of the prevalent trend the existed before the slowness in the trading volume. 

In trading the Flag Pattern using the Breakout Trading Strategy, there are four main stages involved. These are –

  1. Identifying Tradable Wave
  2. Determining Trade Entry
  3. Determining Stop Loss Target
  4. Determining Take Profit Target

In the following subsections, we will briefly cover each of these four stages so that you can identify and take breakout trades using the Flag pattern with confidence.

Identifying Tradable Wave

In this strategy, you would want to look for trading opportunities when you suspect the flag, or the consolidation, is nearing its completion. 

Most flags take between 5 and 20 trading sessions to fully form, therefore, it is somewhere within this timeframe range that a trade needs to be considered. For example, if you are trading on the daily timeframe, you should start looking for a potential breakout trading opportunity after it has been 5 days since the price consolidation began. 

Additionally, with the breakout trading strategy, I would strongly advise against attempting to enter a trade with a consolidation that is any less than 5 trading sessions. This is because, with such an early entry, you can never be sure that the pattern you are looking at is in fact a Flag Pattern.  

Finally, to conclude, with this strategy, you would look to trade the price wave that emerges after the consolidation, or the flag formation, is over. Plus, you should avoid the trade setups that appear even before 5 trading sessions, as taking such premature trades will expose you to unnecessary risk for two reasons –

  1. First, with such premature trade entries, you don’t have a confirmation that the pattern that you are looking at is a Flag Pattern, and for that matter, any other continuation pattern. Therefore, you don’t know if the price will continue its prevailing trend. 
  2. Second, even if the price were to continue in the direction of the previous trend, by entering trades prematurely, you assume the risk of having your capital stuck in a long sideways move if the pattern in formation is a different chart pattern. 

Determining Trade Entry

With the Breakout Trading Strategy, you can enter a trading position based on the below stated guidelines –

  • In the case of a Bullish Flag, you would enter a long trade after the price has broken through the resistance line of the Flag, and you see a trend continuation signal with a complementary trading methodology.
  • Similarly, when trading a Bearish Flag, you would short-sell the asset once the price has broken through the support line of the Flag, and you see a confirmation signal for trend continuation. 

In essence, the breakout of price outside the resistance and the support levels indicates the completion of Flag Pattern and signals a continuation of prevailing price trend. 

Generally speaking, when a price closes outside of one of these levels, before entering a breakout trade, you should at least wait until the opening bell of the next trading session (i.e. a new price candle to form). 

False breakouts are not uncommon in trading. What at first sight appears to a Flag Pattern in development, can easily take the shape of a more complex structure. Hence, confirming the above mentioned trade entries with an alternative trading method, would significantly improve the success probability of your trade.  

Determining Stop-Loss Target

When taking breakout trades using the Flag Pattern, you can leverage the below stated guidelines to determine the stop loss targets for your trades – 

  • With a Bullish Flag Pattern, place the stop loss for your trade just a few points below the support line of the pattern. 
  • Similarly, in the case of a Bearish Flag Pattern, your stop loss can be placed a few points above the resistance line of the pattern.

Simply put, if the price reverts to the far extreme of the Flag you thought had been broken through, it is time to cut your losses and move on to the next trading opportunity.

Determining Take Profit Target

With Breakout Trading Strategy for Flag Patterns, there are several ways by which you can determine the take profit targets for your trades. 

Two popular methods to determine the take profit targets for Flag Pattern breakout trades are as follows –

  • You can set the take profit target for your trades at an equal number of points in percentage (PIPs) past the breakout point as is the height of the pattern’s pole. This methodology is very popular among the traders that are more aggressive or those who have a higher risk appetite. 
  • Alternatively, your take profit targets can be set at a distance that are roughly about the same height as the Flag itself. This is the method of choice for more conversative traders, who have a relatively lower risk appetite.

In addition to these above mentioned methods, you can also leverage complementary tools in technical analysis to determine your take profit targets. Personally, I rely heavily on Fibonacci Extensions for setting take profit targets, and often monitor candlestick pattern formation for making the trade exit decisions.  

Trading Strategy 2: Flag Pattern Swing Trading Strategy

The tenets behind the Swing Trading Strategy for Flag Patterns are similar to those of the breakout strategy but are more specific to short-term or day traders. A swing trader will make more trades and capture fewer profits on a continuation than will a breakout trader. Therefore, a swing trader must monitor the price chart of many securities to identify Flag formations, and be ready to enter and exit the trades quickly. The essential goal with this strategy is to make small but frequent profits, and to cut losses quickly before they materialize into something meaningful.

Similar to the Breakout Trading Strategy, there are four steps involved in trading the Flag Pattern using the Swing Trading Strategy. These are –

  1. Identifying Tradable Wave
  2. Determining Trade Entry
  3. Determining Stop Loss Target
  4. Determining Take Profit Target

Now, let us briefly discuss each of these four stages in the following sections.

Identifying Tradable Wave

With the Swing Trading Strategy, in essence you look for trading opportunities within the internal wave structure of the consolidation within the Flag Pattern. Hence, as a swing trader you are more likely to trade Flag Patterns within the internal wave structure of the Flag itself, as opposed to waiting for the breakout. 

In its simplest form, the Flag, or the consolidation, within the Flag Pattern is composed of three internal waves. These include –

  • Wave-1: Pull back in the direction opposite to the primary, or the original, trend
  • Wave-2: Retracement of the initial pull back, Wave-1, in the direction of the primary trend
  • Wave-3: Another pull back in the direction opposite to the primary trend

Hence, in the Swing Trading Strategy, your objective is to trade within this above structure of the Flag. 

As you would have correctly guessed, not all of these three Waves are tradable; at least from the perspective of trading with a high probability of success. Therefore, you first need to determine which of these three waves you can trade with a relatively high success ratio.

For Swing Trading the internal wave structure of the Flag, listed below are the tradable price waves that you should target – 

  • Wave-3: After Wave-1 and Wave-2 of a Flag have developed, if you get a trade entry signal in the direction opposite to the prevailing trend, the probability that you have a Flag in development skyrockets. Hence, from the Swing Trading standpoint, Wave-3 of the Flag is the price wave that offers traders the highest probability of success.
  • Wave-2: If you are a more aggressive trader and are confident that the prevailing trend will continue, trading Wave-2 of the Flag is also not a bad idea. When trading this wave, determining if we have a Flag in development is not possible with a high degree of confidence. That being said, since we are taking the trade in the direction of the prevailing trend, the overall success probability of the trade can be pretty good.  

Now, let us move forward and discuss how you can determine the trade entries, the stop loss targets, and the take profit targets under this strategy. 

Determining Trade Entry

With Swing Trading Strategy, you trade within the internal wave structure of the Flag. Hence, how you enter trade would greatly depend on what kind of trades you take. That being said, when taking such trades, it is almost always a good idea to look for your trade entries on a timeframe lower than the one where the anticipated Flag structure is in development.    

Once you are on a lower time frame, depending on the wave that you want to trade, you would already know the direction in which you want to take the trade. Hence, all you need for entering such trades is a confirmation signal. 

There are many methods within technical analysis that you can leverage to get such confirmation signals. Few methods that I personally use in such trading scenarios, either by themselves or in combination with each other, include the Candlestick Patterns (specifically, Reversal Candlestick Patterns), Divergence, Support and Resistance, Fibonacci Retracemets and Extensions, and Pivot Points.

Additionally, it is not uncommon for traders to trade a smaller Flag Pattern within the larger Flag Pattern, when swing trading the larger pattern. In such scenarios, you can marry the Breakout Trading Strategy with the Swing Trading Strategy, and take breakout trades on the smaller flags within the larger flags. 

In these scenarios, as described in the Breakout Trading Strategy section, you will enter the trade on the breakout of the resistance (in case of Bullish Smaller Flag) or the support (in case of Bearish Smaller Flag) levels of the smaller Flag. 

Determining Stop Loss Targets

Since the frequency of trading with this strategy is relatively higher, there is a need for you to be even more cautious and conservative with setting stop-loss levels. In essence, anything below (in case of a bullish trade) or above (in case of a bearish trade) .05% of the buy-in price can be considered as a stop-loss level with this strategy.

Many traders also leverage the trailing stops when trading this strategy. Additionally, depending on your trade entry criteria, your methodology to determine the stop loss for the trade can also vary. For example, if you are trading the breakout of a smaller flag within the larger Flag Pattern structure, you will put your stop loss in accordance with the guidelines of the Breakout Trading Strategy. 

Determining Take Profit Targets

With the Swing Trading Strategy, the take profit targets should be short when trading within the Flag structure, perhaps as little as the aforementioned .05 percent. 

When trading the breakout, there may be some more room for leeway, but as a swing trader, you would not want to wait too long before booking profits. 

Hence, with a swing trade, the take profit target for your trade will definitely be put nowhere close to the lengths of the original pole. This is especially true when you are trading the Wave-3 of the flag, as in that scenario the price could anytime make a u-turn with pretty high momentum. 

Additionally, similar to determining the stop loss targets with this strategy, your methodology to place take profit targets can vary depending on your trade entry criteria. Personally, when taking a trade leveraging this strategy, I use Fibonacci Extension levels to identify the take profit targets for my trades.  

Advantages and Limitations of Trading Flag Pattern

Just as with any other tool or method used in forecasting security prices, nothing is guaranteed with trading the Flag Patterns. As a trader, all you can do is use the best tools, indicators, and research at your disposal to enter the trades that give you the highest probability of success. 

To this effect, the Flag Pattern comes with its own set of advantages and limitations. For effectively and profitably trading the Flag Pattern, it is critical that you take these strengths and weaknesses into consideration. Therefore, in the following sections, we will briefly discuss some of the prominent advantages and limitations of trading Flag Patterns.

Advantages of Trading Flag Pattern

  1. Flag Patterns are easy to identify once you know what to look for.
  2. These patterns can be used alongside other technical analysis tools.
  3. Similar to other chart patterns, the Flag Pattern applies well to all tradable instruments, ranging from stocks to forex to cryptocurrencies
  4. Substantial breakouts frequently follow correctly identified flag patterns, allowing traders to capitalize on tidy gains.

Limitations of Trading Flag Pattern

  1. Flag Patterns can sometimes be confused with several reversal chart patterns in technical analysis, such as the Double Top and the Double Bottom Pattern.
  2. These patterns often need to be combined with other analysis methods for confirmation signals to see if retracements are going to be short-term or are the result of a poorly valued security.
  3. These patterns can prove costly if a trade is entered as the result of a false signal.

Comparison: Flag and Pennant Pattern

Along with the Flag Pattern, the Pennant Pattern is another classic chart pattern in Technical Analysis. While their names are different, do not be fooled: the setup and implications of both Flag and the Pennant Patterns are identical, with the only difference being in the shape of the consolidation.

Listed below are few similarities and differences between the Flag and the Pennant Patterns that are important to note while trading these patterns. 

Similarities between the Flag and the Pennant Pattern: 

  • First, Flag and Pennant are both continuation patterns, and regardless of name or shape, all continuation patterns will do the same thing: predict a continuation of a security’s price trend following a brief period of low-volume, sideways movement.
  • Both Flag and Pennant patterns have strong initial trends that form the pole, with a breakout following the retracement period. 

Differences between the Flag and the Pennant Pattern:

The only difference between these two patterns is that during this consolidation period, the resistance and the support trendlines in Flag Patterns run parallel, forming a Flag like structure. 

In contrast, the resistance and the support trendlines get closer together in a Pennant Pattern to create an apex, or pennant, at the end of the consolidation.

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Conclusion

The Flag Pattern is a commonly occuring chart pattern that is excessively used by technical traders to make trading decisions. It is a continuation pattern type that indicates that the prevailing trend in the price of the security will continue post the completion of the pattern. From the popularity and adoption standpoint, the Flag Pattern is one of the most popular chart patterns out there, and is used by traders in all asset classes, including – Stocks, Bonds, Forex and Cryptocurrencies, etc.

There are two variations of this pattern, the Bullish Flag and the Bearish Flag, and both these variations are characterized by three segments, namely – the Pole, the Flag, and the Breakout region.  

The Pole portion of the pattern is characterized by a period of high trading volume. In case of the Bullish Flag, it is high volume buying that results in the formation of the pole region, whereas, in case of the Bearish Flag Pattern, it is high volume selling that leads to the genesis of the pole. 

Post the development of the Pole region, the price of the security retraces leading to the formation of the Flag region. This region in the pattern is marked by a considerable decline in trading volume.

Finally, after the Flag portion of the pattern is complete, volume kicks back up again, and the resistance level of the Flag is broken in the case of a bullish Flag Pattern, while the support level of the Flag is broken in the case of bearish Flag Pattern. This results in the initial trend to reappear on the chart, completing this continuation pattern as the traders theoretically capitalize on the breakout.

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    2. Flag definition. (n.d.). Investopedia. https://www.investopedia.com/terms/f/flag.asp
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    Navdeep Singh

    Navdeep has been an avid trader/investor for the last 10 years and loves to share what he has learned about trading and investments here on TradeVeda. When not managing his personal portfolio or writing for TradeVeda, Navdeep loves to go outdoors on long hikes.

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