In this article, We learn about “The Flag”.Let’s Go!
A flag pattern is a continuation chart pattern named for its resemblance to a flag on a flagpole.
Although it is not as popular as the triangle and wedge, traders consider the flag to be an extremely reliable chart pattern.
The
Flag is a relatively fast chart pattern that appears as a small channel following a steep trend and moving in the opposite direction.
After the uptrend, it has a downtrend. After a downtrend, it will trend up.
The previous trend is crucial to the formation of the pattern.
A “flag” consists of explosive, strong price action forming a nearly vertical line.
This is called a “flagpole”.
After the flagpole is formed, bearish (bullish) traders, eager to take advantage of immediate profits, begin selling (buying) their holdings.
However, this does not result in a rapid price decrease (increase), as bullish (bearish) traders start buying in the hope of taking advantage of future price increases (decreases).
The resulting downtrend (upward) trend channel resembles a downward sloping (upward sloping) parallelogram, giving the chart the appearance of a flag, hence the name.
When trendline resistance on the flag is broken, it triggers the next phase of the trend and price continues to advance.
What distinguishes a flag pattern from a typical breakout or crash is the extreme pattern that represents an almost vertical and parabolic initial price movement.
Flag patterns can be bullish or bearish:
- The bullish flag is called a bull flag.
- A bearish flag is called a bear flag.
Breakouts occur in both directions, but almost all flags are continuation patterns.
This means that a flag in an uptrend is expected to break through to the upside and a flag in a downtrend is expected to break through to the downside .
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