| When talking about flag patterns, it probably will | | | | the previous trend. For a bullish flag pattern, the flag |
| remind many traders of wedges and triangles, | | | | would slope down; a break above resistance indicates |
| actually there's no difference among them - they are | | | | that the previous advance is resumed. For a bearish |
| short-term continuation patterns. For convenience, | | | | flag pattern, the flag would slope up, a break below |
| we'll call all these patterns as flag in the rest of the | | | | support indicates that the previous decline is resumed. |
| article. Flag is a sharp, strong rise/fall trend with | | | | The biggest difference between flags and other |
| several bars of sideways price action on much | | | | patterns is that, flags (wedge or triangle) are usually |
| weaker trade followed by a second, sharp move to | | | | too short in duration to have any real impact on highs |
| new highs/lows. | | | | and lows of the price. The price actions are confined |
| Flags, wedges and triangles can be categorized as | | | | within two parallel trend lines, while other patterns are |
| continuation patterns. They usually represent only | | | | not. |
| brief pauses in a currency pair. They are typically | | | | The following indications are important when |
| seen right after a big, quick move. The price then | | | | identifying flags. |
| usually takes off again in the same direction. | | | | - Flag patterns occur when a market makes a very |
| Research has shown that these patterns are some | | | | strong up /down trend in prices, followed by a pause |
| of the most reliable continuation patterns. | | | | or sideways trading for a few price bars; if the |
| Flag Patterns in GBPUSD daily chart | | | | distance of the flagpole is limited, flag will be less |
| Flags are short-term patterns that can last from 1 to | | | | typical. |
| 12 bars. There is some debate on the timeframe and | | | | - Do pay special attention to the slope of flags: if the |
| some consider 8 bars to be pushing the limits for a | | | | slop is consistent with the trend, it's highly possible |
| reliable pattern. Ideally, these patterns will form | | | | that it is not a continuation patterns, but an |
| between 1 and 4 bars. Once a flag becomes more | | | | exhaustion of current trend, full of risk of reversion. |
| than 12 bars or more, it would be classified as a | | | | - The duration of flag. If the duration is longer than |
| rectangle. | | | | others in current trend, the trend is very near to the |
| A flag is a small rectangle pattern that slopes against | | | | end; discretion is advised. |