Flag and Pennant Patterns: The Pause After a Sharp Move

Two parts: the pole and the flag

A flag pattern has two parts. First comes a stretch where price moves a long way, almost in a straight line, over a short period; this is called the flagpole. Price then rests for a while in a narrow range, and because that stretch looks like cloth hanging from the end of the pole, it is called the flag. If the two lines connecting the highs and the lows of the pause are nearly parallel and tilt slightly against the direction of the pole, the shape is a flag; if the two lines draw steadily closer and form a small triangle, it is a pennant, named after the small triangular flag. A pole usually comes from an event that pushes orders in one direction: a breakout from a range, unexpected news, or the forced unwinding of crowded positions. That is why the search starts with the pole. First look for a move that is clearly steeper than the trend before it and finished within a few bars, then check whether the pause attached to its end is narrow and short compared with the pole. The name flag fits only when the height of the pause is a small fraction of the pole's length. A narrow channel without a pole is just a small channel, with no reason to call it a flag. Many explanations also count a pause that drifts almost horizontally, without a tilt, as a flag.

• Flagpole: a steep one-way move completed within a few bars
• Flag: a narrow parallel channel tilted slightly against the pole
• Pennant: a small triangle whose two lines converge
• Breakout: the bar that leaves the pause in the direction of the pole

Why it is called a continuation pattern

Textbooks classify flags and pennants as continuation patterns. Calling it a continuation pattern means that the typical case is one where, once the pause ends, price resumes the direction it was moving in before, that is, the direction of the pole. The usual explanation is that after a fast move some traders lock in profits while others step in, so the market is briefly in balance, and when that balance breaks, the earlier move carries on. Broken down by participant, those who got in early in the pole sell part of their position to take profits, those who missed the pole wait for a pullback to buy, and those who bought late at the top wonder whether to sit through a loss. Many people read a shallow pullback on shrinking volume as a sign that there is not much supply, and a pullback that deepens with volume picking up near the lows as a sign that sellers are more numerous than expected. But this is an explanation attached to a shape, not a sign that the direction is settled. If the pole came from one-off news, the whole pole is sometimes given back once that news has been digested. If price leaves the pause against the direction of the pole, the chart is no longer a continuation pattern.

A bull flag, illustrated

The figure below illustrates a bull flag. The part where price, after moving sideways, climbs sharply within a few bars is the pole; the narrow channel that follows, with highs and lows edging slightly lower and retracing only about a third of the pole, is the flag. The typical textbook picture has volume surging while the pole forms, shrinking inside the flag, and rising again on the bar that crosses the upper line. How many times its usual level volume reached during the pole can be expressed the way the Volume Spike Scanner does it: as a multiple of the average volume over the previous 20 bars. There are three things to check, in order: whether volume on the pole bars was clearly higher than in the stretch before, whether volume inside the flag fell below what it was during the pole, and whether volume picked up again on the bar whose close crossed the upper line. If volume inside the flag rises instead of falling while price slides, some read it not as a rest but as supply coming onto the market. If volume on the breakout bar is about the same as inside the flag, many take it to mean few orders are backing the breakout. The general way to read volume is covered in the article on reading volume.

Measured target: the pole's length from the breakout

The calculation most often quoted for flags is to measure the length of the pole and add it, as is, to the point where price leaves the flag. In the figure the pole rose 30, from 100 to 130, and a close crossed the flag's upper line near 124, so the calculated target is 124 + 30 = 154. Explanations differ slightly on where the pole should be measured from (the bar where the surge began, or the top of the preceding range), and the target shifts accordingly. On volatile coin charts some people measure in percentages rather than price amounts, which gives yet another result. One explanation for why this calculation is so widely used is not that it is accurate but that many people watch the same number, so profit-taking orders tend to cluster near it. In practice it is better to check first whether there is a prior high or a thick band of overhead supply between the breakout point and the calculated target. If there is, price often stalls before reaching the target; if nothing stands in the way, it sometimes overshoots the target by a wide margin. Whichever method you use, it is only a calculation derived from the shape; it does not tell you the probability of price reaching that level.

Bear flags and bear pennants

Reverse the direction and you get the bear flag and the bear pennant. Price falls steeply over a short period to form the pole, rests in a narrow channel that edges upward (bear flag) or a small narrowing triangle (bear pennant), and then breaks below the lower line. The measured target is the pole's length subtracted from the breakdown point. On the downside, the heart of the shape is that the bounce after the drop is weak and short. Right after a sharp drop, profit-taking by short positions and buyers who see a bargain produce a brief bounce, but if that bounce draws no volume, it is read as a sign that few new buyers are stepping in. Because fear tends to make declines move faster than advances, bear flags are often drawn as ending sooner than bull flags. As in the figure, the shape is considered complete only when the pennant, with falling highs and rising lows, breaks below its lower line on a close. If the bounce grows large enough to retrace a substantial part of the pole, it is hard to call it a flag, and the interpretation changes as well. A volume blowout at the bottom of a plunge followed by an immediate, large recovery is an entirely different scene, one usually read as the end of capitulation.

How pennants differ from triangles and wedges

Judged by shape alone, a pennant is a small symmetrical triangle and a flag is a small channel. So what separates them from other patterns is not so much the shape as the pole in front of them and their size. The triangles covered in the triangle patterns article need no pole before them and take longer to form, whereas a pennant attaches briefly to a steep pole. A wedge is a shape whose two lines slope the same way as they narrow, and some explanations call a small wedge that forms briefly after a pole a flag, so the boundary is blurry. In practice it is easier to ask three questions in turn. First, was there a move much steeper than the earlier trend right before the pause? Second, is the pause ending within a time similar to, or only slightly longer than, the pole? Third, is the pause small in height compared with the pole? If all three hold, a flag or pennant fits; if any one fails, a triangle, wedge or range is the better description. Rather than picking a name, it is less confusing to check first whether there was a pole and how short the pause is. Whatever the name, confirming the breakout on a close works the same way.

When the flag drags on, it becomes another shape

One condition of the flag that people often forget is its length. Textbooks describe the flag as a short halt in the middle of a fast move, and treat as typical a flag that lasts no more than a few weeks on the daily chart. The longer the pause lasts, the weaker its link to the move that made the pole, and the shape ends up classified under other names such as a range, a triangle or a wedge. As time passes, the news that created the pole is already in the price and the participants who drove it have squared their positions, so it becomes hard to argue that the original momentum is being carried forward. When you switch bar lengths, comparing the number of bars in the pole and the flag is more useful than comparing calendar time. If the pole finished in a few bars but the flag has run for several times as many, it has already drifted away from the typical flag. Depth works the same way: many explanations say that once a flag retraces close to half of the pole, it is hard to see it as a shallow pause. The name flag fits when the following conditions hold together.

• Slope: did the pole move steeply within a few bars?
• Length: did the pause end quickly (within a few weeks on daily bars)?
• Depth: did it retrace only part of the pole?
• Breakout: did a close cross the line in the direction of the pole?

What this shape does not tell you

Until a breakout appears, a flag is just a correction after a sharp move. If the same shape breaks out against the pole, that sharp move turns out to have been the last leg, and which it was can only be known in hindsight. That is why people who watch this shape often decide in advance, along with the breakout direction, the point at which they will consider their reading wrong. For a bull flag, the flag's lower line or the lowest low inside the flag is commonly used as that reference. The statistics this course measured directly on Binance bars cover only candlestick patterns and indicator signals; flags are not among them. Because the sample changes a great deal depending on how you define the pole's steepness and the number of bars in the flag, success rates quoted elsewhere are hard to compare unless you know the definition behind them. Also, when you look back over charts that have already made big moves, the flags that worked stand out, while the ones that collapsed tend to slip from memory as just another top or bottom. When a chart that looks like a flag comes up while you work through the Chart Prediction Quiz, one approach is to compare your own expectation with what actually happened.

How it looks different in crypto and stocks

Coins trade around the clock, so the pole and the flag are drawn as an unbroken run of bars. Stocks stop trading when the regular session ends, and the next day's open can start away from the previous close, leaving a gap. When Samsung Electronics or SK hynix opens with a gap after an earnings release, the gap itself can act as the pole, and the narrow movement over the following days becomes the flag. For stocks that report after the close, such as large US tech names, the pole can form outside regular hours and show up on the daily chart only as empty space. Breakouts can also happen through a gap, with no bar crossing the flag's upper line: the next session simply opens above it. Korean stocks have a daily price limit (30% up or down), so a pole that hits the upper limit stops there for the day, while coins have no such limit and a pole can stretch a long way in one go. In crypto, mass liquidations of leveraged futures positions often make the pole unusually steep and the flag short. Volume differs in nature too. Stock volume covers all trades in that stock, but the volume on a coin chart usually comes from a single exchange and leaves out activity elsewhere.

A practical checklist

Flags form quickly and resolve quickly, so you will often meet them on a live chart. The thing to be most careful about there is the bar that has not closed yet. Even if the bar in progress appears to cross the flag's upper line, it is not a breakout if it closes back inside the line, and any on-screen signal can flip several times before the bar ends. A new high or low also redraws the flag's lines, so check whether the line you drew a few bars ago still holds. Going through the following order reduces the chance of being led by the name.

• Pole: was it clearly steeper than the earlier trend and finished within a few bars?
• Flag: has it not dragged on longer than the pole, with a height that is only part of the pole?
• Volume: did it rise during the pole and fall inside the flag?
• Breakout: did a closed bar's close cross the line in the direction of the pole?
• Invalidation: have you set the opposite line or the extreme inside the flag as your reference?