This technical analysis guide teaches you about Flag chart patterns.
We start by discussing what flag patterns are and how they are presented on a chart. Then, we explore the flag pattern indicators that show potential buy or sell signals.
What Is A Flag Chart Pattern?
The Flag pattern usually occurs after a significant up or down market move. After a strong move, prices usually need to rest. This resting period usually occurs in the shape of a rectangle, thus the word “flag”.
The Flag is considered a continuation pattern because after resting, prices will usually continue in the direction they did before.
How Do Flag’s Show Buy Signals?
When the price has moved higher and prices have consolidated, creating a channel of support and resistance, a potential buy signal is given when prices penetrate and close above the upward resistance line.
How Do Flag’s Show Sell Signals?
Assuming prices previously moved downward, then after a period of price consolidation, a potential sell signal is given when price penetrates and closes below the support line.
Another similar pattern discussed is Triangles.
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How do you identify bullish flag patterns?
First, traders look for a sharp prior uptrend, known as the flag pole, followed by a consistent downward sloping correction. Traders also use Fibonacci retracement to qualify the ‘shape of the flag’ based on the retracement percentage. Traders should note that flag patterns are a technical analysis tool, not one for completely accurate price prediction.
What is a bear flag pattern?
Unlike a bull flag pattern, a bear pattern shows traders a sharp downward price drop in a chart, followed by a gradual positive consolidation after the ‘flag pole’. It is thought of as a technique used to identify continuing downward trends in stock and commodity trading charts.