Flags and pennants

The pause that refreshes

After a strong move the market needs to catch its breath. Early buyers take some profit, latecomers wait for a better price — and price drifts sideways or slightly against the trend in a tight, quiet range. When the pause ends, the original move often resumes. That pause is a flag (a small channel) or a pennant (a small triangle). Flags and pennants are among the most traded continuation patterns because they give a tight stop and a clear trigger.

The parts

1. Pole (flagpole) — a sharp, almost straight move on heavy volume. No pole, no flag: a sideways drift without a strong push before it is just a range.
2. Flag — a small, orderly consolidation sloping gently against the pole (down, in a bull flag), between two roughly parallel lines. Volume dries up.
3. Breakout — a close outside the flag in the direction of the pole, with volume coming back.

In the example:

• The pole runs from $50 to $60 in five candles (+$10, +20%) — the biggest volume bars on the chart are here.
• The flag drifts down in a narrow channel to $56 — it gives back only $4 of the $10 (40%) while volume falls to its lowest level.
• The upper line breaks near $58 and volume jumps.
• Measured move: add the pole's length to the breakout point: $58 + $10 = $68.

Why flags work

The pole shows urgent demand — often news, an earnings report or a whole-sector move (earnings season). The flag shows that sellers can't do much with it: the pullback is shallow, slow and on low volume. Profit-takers are selling, but nobody is dumping. Once that small supply is absorbed, buyers who missed the pole step in on the breakout and the move resumes.

Rules of a healthy flag

• Shallow: a bull flag usually retraces no more than ~38–50% of the pole. A deeper pullback is a warning.
• Short: on a daily chart, typically 1–3 weeks (about 5–15 candles). A "flag" that lasts months is a different pattern.
• Quiet: volume falls during the flag. Big red candles on heavy volume inside the flag mean distribution (selling), not rest.
• Orderly: small candles, overlapping bodies, few long wicks.

These aren't exact laws — they are guidelines you'll find throughout the pattern literature.

Pennants

A pennant is the same idea, except the consolidation is a tiny symmetrical triangle instead of a parallel channel: lower highs and higher lows converge. Here:

• Pole $80 → $92 (+$12).
• Pennant: highs falling from $92, lows rising from $88; volume shrinks.
• The upper line breaks at $90: entry $91, stop below the last low ($89) at $88.6, target $90 + $12 = $102.
• Risk $2.4, reward $11 → about 4.6R on paper. That looks great — but measured targets on flags are optimistic, so plan to take partial profit earlier (see below).