A flag pattern begins with a sharp price move (the flagpole), followed by a brief period of consolidation that forms a small rectangular channel. The flag portion is bounded by parallel sides and usually trends slightly against the direction of the initial move. The overall shape resembles a flag on a pole when charted over time.
Traders and analysts view flags as continuation patterns: if the price breaks out of the flag in the same direction as the preceding move, the pattern is interpreted as a resumption of that move. Flags are most common on shorter timeframes, from intraday to daily charts, but can occur on longer horizons as well. The flagpole represents the initial price surge, while the flag represents a pause or brief consolidation. Volume often falls during the flag and may rise on the breakout, which some observers use as a potential confirmation, though volume alone is not decisive.
Flags are one of several price-action patterns used to assess trends and possible continuations. They differ from pennants, which have a converging shape, and from rectangles, which are broader. Like all chart patterns, flags do not guarantee future price moves and should be evaluated with other tools, including trend direction, support and resistance levels, and other technical indicators. Market conditions and the asset's liquidity can affect how a flag forms and plays out.
After a rapid 8% price increase, the asset forms a small rectangular flag over several days; a breakout from the flag in the same direction as the initial move is observed.
Continuation pattern · Pennant · Flagpole · Breakout · Trend line · Support and resistance