In technical analysis, a flag pattern indicates short-term price movements inside a parallelogram coounter to the previous long-term trend. Traditional analysts view flags as potential trend continuation indicators.
There are two types of flag patterns: bull flag and bear flag. While their outcomes are different, each flag exhibits five key characteristics, as listed below:
- The strong preceding trend (flagpole or pole)
- The consolidation channel (the flag itself)
- The trading volume pattern
- A breakout
- A confirmation of the price moving in the direction of its previous trend.