What is Flag Pattern?
A flag pattern is a continuation pattern where a strong price move (the flagpole) is followed by a brief consolidation period (the flag) before the price continues in the same direction.
Flag Pattern Explained
Flags are among the most reliable continuation patterns. The consolidation should be against the trend direction (a downward flag in an uptrend, or upward flag in a downtrend) and on declining volume. The breakout should occur on increasing volume. The measured move target equals the length of the flagpole projected from the breakout point.
Real-World Example
A stock surges from $50 to $65 in two days (flagpole). Over the next five days, it drifts down to $60 in a tight channel (flag). When it breaks above $63 on high volume, a trader buys with a target of $65 + $15 = $80 (flagpole projected from breakout).
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