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FLAGS AND PENNANTS

Flags and pennants can be categorized as continuation patterns.  They usually represent only brief pauses in a dynamic market.  They are typically seen right after a big, quick move.  The market then usually takes off again in the same direction.  Research has shown that these patterns are some of the most reliable continuation patterns.

Bullish flags are characterized by lower tops and lower bottoms, with the pattern slanting against the trend. But unlike wedges, their trendlines run parallel.

Bearish flags are comprised of higher tops and higher bottoms.  "Bear" flags also have a tendency to slope against the trend.  Their trendlines run parallel as well.

Pennants look very much like symmetrical triangles.  But pennants are typically smaller in size (volatility) and duration.  

(Volume generally contracts during the pause with an increase on the breakout.)


Bull flag in an uptrend. Big move with big volume. Notice how the breakout move was approximately as large as the flag's 'pole'.

"BULL" PENNANT IN AN UPTREND (BULLISH)

"Bull" pennant in an uptrend.  After a month long rally, the market takes a five day breather and continues even higher.  Volume dips briefly and then picks up on the breakout. 

 

"BULL" PENNANT IN AN UPTREND (BULLISH)

How's that for a pattern?  Remember from the preceding page; 'pennants look very much like symmetrical triangles, but are typically smaller in size (volatility) and duration.'  After a near straight up advance, the market takes only three days before resuming the upmove.  During those few days, participation drops off a bit, but comes back as the market explodes out of the pennant.  (Take a look at all those gaps right before and right after the pennant.  Obviously a very strong and convinced market!)

 

 


 

 

"BEAR" PENNANT IN A DOWNTREND (BEARISH)

"Bear" pennant in a downtrend.  This pattern came right after a 'bear' flag breakout.  (Can you see it?) This pennant also presents only a brief pause before the market reasserts itself in the direction of the trend (down.)  Volume dips in the pattern and jumps as the market breaks out and gaps lower.   

 

 

"BEAR" PENNANT IN THE BEGINNING OF A DOWNTREND (BEARISH)

"Bear" pennant in the beginning of a downtrend.  After a dramatic two day plunge, the market has a short lived consolidation. The rout continues and the market collapses.  You can see activity dry up in the pennant.  The breakout though, was made on extremely heavy volume.