Flag
A continuation pattern that forms when a sharp, fast move (the pole) is followed by a short pause in a narrow channel sloping against that move. It appears as a bull flag in a rise and a bear flag in a fall. It completes when the channel breaks in the direction of the pole, and it can suggest that the earlier move may carry on.
How it forms
- Pole. Price makes a sharp move over a few candles, almost in a straight line. The move is clearly larger than the swings before it and usually comes on high volume.
- Flag. Price then moves between two roughly parallel lines that slope gently against the pole. In a bull flag the channel slopes down; in a bear flag it slopes up. Each line is touched at least twice.
- Retracement limit. The flag retraces less than half of the pole. In most examples the pullback stays around a third of the pole.
- Duration. The flag is short. It usually completes within about 5 to 20 candles and is not long compared with the pole. Volume often fades during this time.
- Completion. The pattern is complete when price closes outside the channel line on the pole's side. In a bull flag this is the upper line; in a bear flag, the lower line.
The ratios and candle counts are approximate. They are commonly accepted textbook values, not hard limits.
What it suggests
The pole shows one side taking control in a short time. The flag is a pause after that move: some participants take profit and price drifts back a little, but the other side cannot reverse the move. A shallow, orderly pullback may suggest that the dominant side is still in control.
A flag only means something after a genuinely sharp pole. Not every downward-sloping channel after a slow rise is a flag. The longer the channel runs, or the deeper the pullback gets, the less it is a flag and the more it may turn into another structure.
When it strengthens, when it weakens
Strengthens
- A pole on high volume with almost no pauses
- Volume fading through the flag
- Volume picking up again at the break
- A pullback of less than a third of the pole
- A short flag that draws a tidy channel
Weakens
- A slow or choppy pole
- A pullback approaching half of the pole
- A flag that lasts very long compared with the pole
- The break coming on low volume
- A strong zone close by in the direction of the break
The MarketLevelMap view
How it relates to zones
A flag is a short-lived pattern and often forms right next to a zone. Its link to zones shows most clearly in these cases:
- If the pole broke through a zone, the flag often forms just above it (below it in a bear flag). The flag can then be read as a retest of the broken zone. If old resistance is acting as support, the flag looks sturdier.
- If the pole ran into a zone and stalled, the flag forms just below it (above it in a bear flag). A break of the channel then also means clearing the zone, so the break carries more weight.
- The first zone in the direction of the break is a more realistic reference than the pole measurement for where price may react again.
If the pullback inside the flag reaches into a zone, whether price holds in that zone may say more than the pattern itself. A close on the far side of the zone weakens the flag reading.
When it completes
Close outside the channel line on the pole's side.
When it is invalidated
Before completion: If price closes outside the channel line on the side away from the pole, or the pullback retraces more than half of the pole, the pattern is not considered a flag.
After completion: Even after the break, if price returns into the channel and closes beyond the flag's extreme point (the lowest point in a bull flag, the highest in a bear flag), the continuation scenario is considered invalid.
Often confused with
- PennantThe pole is the same, but in the pause the lines converge instead of running parallel: a small triangle forms.
- RectangleThe channel is flat rather than sloped, and it often lasts longer.
- Falling WedgeThe lines slope down but converge instead of running parallel. It does not need a sharp pole before it.
For general information only. Not investment advice.Last updated: