Lesson 5 of 8 · Candles & Chart Patterns
Flags & pennants
A flag is the market catching its breath.
After a sharp move (the pole), price drifts in a tight channel against the trend on falling volume. This is a bull flag if the pole was up. The drift is a pause, not a reversal.
Bull flag: pole then drift.
POLE marks the sharp initial move. FLAG marks the consolidation against it. The classic entry is a break out of the channel in the pole's direction. Measure the pole height to estimate the target. Tighter channels and clean poles give cleaner breakouts.
A pennant is a tighter version.
A pennant forms when the consolidation tightens into converging trend lines rather than a parallel channel. The mechanics are identical: shrinking volume during the squeeze, expanding volume on the break. The tighter the compression, the more energy stored.
Price is squeezing into a pennant. Which way does it break?
Reveal what happened
It went up. Price broke upward from the PENNANT, continuing in the direction of the prior pole. Pennants are continuation patterns and resolve up more often than not when the preceding trend was strong. They can also fail: a break below the rising lows cancels the setup.
After a strong rally, price drifts slightly lower on shrinking volume. Which way does the textbook favor?
Show the answer
A. Continuation up. Flags are continuation patterns. The drift is a pause, not a change of direction.