Flag Pattern

0
23
Last modified: May 6, 2021
You are here:
Estimated reading time: 1 min

A Flag Pattern is a continuation chart pattern, named due to its similarity to a flag on a flagpole.

Although it is less popular than triangles and wedges, traders consider flags to be extremely reliable chart patterns.

A flag is a relatively rapid chart formation that appears as a small channel after a steep trend, which develops in the opposite direction.

After an uptrend, it has a downward slope. After a downtrend, it has an upward slope.

The preceding trend is crucial for pattern formation.

A “flag” is composed of an explosive strong price move forming a nearly vertical line.

This is known as the ”flagpole”.

bull-flag

After the flagpole forms, bearish (bullish) traders, eager to capitalize on instant profits, begin selling (buying) off their holdings.

However, this doesn’t cause a rapid decline (increase) in price, as bullish (bearish) traders, begin buying,  hoping to capitalize on future increases (decreases) in price.

The resulting descending (ascending) trend channel resembles a downward-sloping (upward-sloping) parallelogram, giving the chart the appearance of a flag, and hence its name.

When the trend line resistance on the flag breaks, it triggers the next leg of the trend move, and the price proceeds ahead.

What separates the flag from a typical breakout or breakdown is the pole formation representing almost a vertical and parabolic initial price move.

Flag patterns can be bullish or bearish:

Breakouts happen in both directions but almost all flags are continuation patterns.

This means that Flags in an uptrend are expected to break out upward and Flags in a downtrend, are expected to break out downward.


If this article seems useful for your then please click the like button below. You can also share your valuable feedback or ask questions in the below comment section. Also, subscribe to our newsletter for trading-related updates.
Was this article helpful?
Dislike 0 0 of 0 found this article helpful.

OPEN A DEMO ACCOUNT

Previous articleBear Flag
Next articleBull Flag
FXPedia.info helps individual traders learn how to trade the forex market. We introduce people to the world of currency trading and provide educational content to help them learn how to become profitable traders. We're also a community of traders that support each other on our daily trading journey.

LEAVE A REPLY

Please enter your comment!
Please enter your name here