Flag and pennant are two common chart patterns used in technical analysis to analyze price movements in financial markets, particularly in stocks, forex, and cryptocurrencies. These patterns are typically considered continuation patterns, meaning they suggest that the existing trend is likely to continue after a period of consolidation.
An overview of both patterns –
Flag Pattern:
Formation: The flag pattern resembles a flag on a flagpole. It consists of two parts –
Flagpole: The flagpole is a strong and sharp upward or downward price movement, representing the initial trend.
Flag: After the flagpole, there is a rectangular or parallelogram-shaped consolidation area, which is the flag. It usually slopes against the direction of the trend.
Duration: The flag pattern typically forms over a relatively short period, ranging from a few days to a few weeks.
Breakout: A breakout from the flag pattern occurs when the price breaks out in the same direction as the initial trend (i.e., upward for a bullish flag or downward for a bearish flag).
Volume: Generally, volume tends to decline during the formation of the flag and increases when the breakout occurs.
Pennant Pattern:
Formation: The pennant pattern is similar to the flag pattern but is characterized by a small symmetrical triangle or wedge-shaped consolidation area following a sharp price move.
Duration: Pennants are also relatively short-term patterns, often forming within a few weeks.
Breakout: Like the flag pattern, a breakout from a pennant pattern occurs in the direction of the prior trend.
Volume: Volume tends to decrease during the formation of the pennant and typically surges when the price breaks out.
