Flag and Pennant

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WHAT TO LOOK FOR

The Flag and Pennant is considered a continuation pattern. It is preceded by a sharp advance or a sharp decline. The Flag and Pennant is a small consolidation that occurs before the original advance or decline continues. The Flagpole is the distance from the first resistance or support break to the high or low of the flag/pennant. The Flag itself is a small rectangle that slopes away from the overall trend. A Pennant can also be formed instead of a Flag. A Pennant is a small symmetrical triangle that begins wide and converges to a point as the pattern develops. Typically, there is little or no slope to the Pennant. Price movements will usually stay within the converging trend lines which form the triangle. Generally speaking the Flag and Pennant formation usually occurs about half way through the duration of the larger, overall trend. Once price breaks out of the Flag or Pennant, the original trend should continue.

Key aspects of the Flag and Pennant Pattern

  1. Trend: Because the Flag and Pennant is a continuation pattern it will be preceded by a well defined trend either bullish or bearish.
  2. Flagpole: The flagpole is the distance from the first resistance or support break to the high or low of the flag/pennant. The sharp advance (or decline) that forms the flagpole should break a trend line or resistance/support level. A line extending up from this break to the high of the flag/pennant forms the flagpole.
  3. Flag: The Flag itself is a small rectangle that slopes away from the overall trend. A Pennant can also be formed instead of a Flag. A Pennant is a small symmetrical triangle that begins wide and converges to a point as the pattern develops.
  4. Pennant: A Pennant is a small symmetrical triangle that begins wide and converges to a point as the pattern develops.
  5. Duration: The ideal duration of these patterns is somewhat debatable. Flag and Pennant definitely leans more towards the shorter term. Most people believe that the formation of the pattern should be between 1 and 4 weeks. Anything between 4 and 12 weeks would have more mixed results. A formation that lasts longer than 12 weeks would not be valid.
  6. Break: For a bullish formation, a break above resistance indicates that the previous advance has resumed. For a bearish formation, a break below support indicates that the previous decline has resumed.
  7. Volume: Volume should be heavy during the formation of the flagpole. Volume should also be heavy during the breakout of the Flag or the Pennant.