Bull flags, bear flags and pennants
Quick answerA flag is a short pause after a sharp move: a small channel tilted against the move (a flag) or a small triangle (a pennant). The breakout in the direction of the first move is the signal.
The details
The shape
- The pole: a fast, strong move up (bull flag) or down (bear flag).
- The flag: price drifts in a small channel against that move, on lighter volume. When the pause is a small triangle instead, it is a pennant.
- The breakout: a close out of the flag in the direction of the pole.
Trading it
- Entry on the close outside the flag.
- Stop on the other side of the flag.
- The classic target is the pole's length, measured from the breakout (stops and targets).
A flag that drifts back more than about half the pole is losing its strength.
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