Flag and Pennant: Continuation Patterns
Flag and pennant patterns are short-term continuation formations that form after a strong directional move.
What Are Flag and Pennant Patterns?
Flag and pennant patterns are short-term continuation formations that appear after a strong directional move. They represent brief pauses where price consolidates before resuming the prior trend. Both patterns are reliable and frequently appear on intraday and daily charts across stocks, forex, and futures.
What the Patterns Look Like
Bull Flag
- A strong rally (the flagpole) followed by a slight downward-sloping channel (the flag)
- Price pulls back modestly on lower volume
- Breakout to the upside resumes the uptrend
Bear Flag
- A strong decline (the flagpole) followed by a slight upward-sloping channel (the flag)
- Price bounces modestly on lower volume
- Breakdown to the downside resumes the downtrend
Pennant
- Similar to a flag but the consolidation forms a small symmetrical triangle rather than a channel
- Converging trendlines show price tightening
- Breakout occurs in the direction of the prior move
What They Signal
Flags and pennants signal that the prior trend is pausing, not reversing. The brief consolidation allows profit-taking and repositioning before the trend resumes. The pattern is confirmed when price breaks out in the direction of the original move.
The flagpole (the initial strong move) provides the direction bias. The flag or pennant is just a resting period.
How to Trade Them
- Identify the flagpole. Look for a strong directional move that establishes the trend.
- Wait for the consolidation. The flag or pennant should form on lower volume.
- Enter on the breakout. Trade in the direction of the flagpole when price breaks out of the flag or pennant.
- Place your stop-loss just outside the opposite side of the flag or pennant.
- Measure the target. Project the length of the flagpole from the breakout point.
Trading Example
A stock surges from $40 to $50 in two days, forming a flagpole. Over the next week, price pulls back in a downward-sloping channel to $47. When price breaks above the upper channel on strong volume, traders enter long with a stop below $47. The target is $50 - $40 = $10, projected up from $50 to give a target of $60.
Common Mistakes
- Entering before the breakout confirms
- Treating large consolidations as flags when they're actually reversals
- Ignoring volume — breakouts on low volume are more likely to fail
Flags and pennants are popular among day traders and swing traders because they offer quick, high-probability setups with clear entry, stop-loss, and target levels based on the flagpole's measured move.