Flags and pennants

Flags and pennants are short continuation patterns — brief pauses that interrupt a strong move before it resumes in the same direction.

The shapes

Both begin with a sharp, near-vertical move called the flagpole, then a small consolidation:

• A flag consolidates in a small rectangular channel that slopes gently against the prior move.
• A pennant consolidates in a tiny symmetrical triangle.

The difference is cosmetic; they behave the same way.

How to trade them

• Entry — on the break out of the consolidation in the direction of the flagpole.
• Stop — on the far side of the flag/pennant.
• Target — a classic measure is to project the length of the flagpole from the breakout point.

The limitations

• A flag that slopes strongly against the trend, or drifts too long, is suspect — real flags are brief and shallow. A deep, lengthy "flag" is more likely a genuine reversal.
• Like all patterns they can fail; the flagpole-length target is a rule of thumb, not a promise. Volume usually contracts during the flag and expands on the breakout — weak breakout volume is a warning.