Flag and pennant patterns

Part of a series on
Finance
Markets Assets Asset (economics) Bond Asset growth Capital asset Commodity Derivatives Domains Equity Foreign exchange Money Over-the-counter Private equity Real estate Spot Stock Participants Angel investor Bull (stock market speculator) Financial planner Investor institutional Retail Speculator Locations Financial centres Offshore financial centres Conduit and sink OFCs
Instruments Bond Cash Collateralised debt obligation Credit default swap Time deposit (certificate of deposit) Credit line Deposit Derivative Futures contract Indemnity Insurance Letter of credit Loan Mortgage Option (call exotic put) Performance bonds Repurchase agreement Stock Security Syndicated loan Synthetic CDO
Corporate General Accounting Audit Capital budgeting Capital structure Corporate finance Credit rating agency Enterprise risk management Enterprise value Risk management Financial statements Transactions Leveraged buyout Mergers and acquisitions Structured finance Venture capital Taxation Base erosion and profit shifting (BEPS) Corporate tax haven Tax inversion Tax haven Transfer pricing
Personal Credit / Debt Employment contract Financial planning Retirement Student loan
Public Government spending Final consumption expenditure Operations Redistribution Transfer payment Government revenue Taxation Deficit spending Budget (balance) Debt Non-tax revenue Warrant of payment
Banking Central bank Deposit account Fractional-reserve Full-reserve Investment banking Loan Money supply Lists of banks Bank regulation Banking license Basel Accords Bank for International Settlements Financial Stability Board Deposit insurance Separation of investment and retail banking
Regulation · Financial law International Financial Reporting Standards ISO 31000 Professional certification Fund governance
Economic history Private equity and venture capital Recession Stock market bubble Stock market crash Accounting scandals
Outline Business and Economics portal Money portal
v t e

The flag and pennant patterns are commonly found patterns in the price charts of financially traded assets (stocks, bonds, futures, etc.).^[1] The patterns are characterized by a clear direction of the price trend, followed by a consolidation and rangebound movement, which is then followed by a resumption of the trend.^[2] They are continuation patterns and form when the asset prices rally or fall sharply.^[2]

The flag pattern is encompassed by two parallel lines. These lines can be either flat or pointed in the opposite direction of the primary market trend. The pole is formed by a line which represents the primary trend in the market. The pattern, which could be bullish or bearish, is seen as the market potentially just taking a "breather" after a big move before continuing its primary trend.^[3][4] The chart below illustrates a bull flag. A bear flag would trend in the opposite direction.

A classic pattern for technical analysts, the pennant pattern is identifiable by a large price move, followed by a consolidation period and a breakout. The pattern resembles a flagpole. The pennant phase is identified by an initial large price movement indicating high volume transactions, followed by weaker price movement indicating low volume transactions. Traders earn by capitalizing on the breakout phase.^[5] The pennant pattern is identical to the flag pattern in its setup and implications; the only difference is that the consolidation phase of a pennant pattern is characterized by converging trend lines rather than parallel trend lines.^[2][6] The image below illustrates the pennant pattern.