The flag and pennant patterns are commonly found
patterns
A pattern is a regularity in the world, in human-made design, or in abstract ideas. As such, the elements of a pattern repeat in a predictable manner. A geometric pattern is a kind of pattern formed of geometric shapes and typically repeated l ...
in the price charts of
financially traded assets (
stock
In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...
s,
bonds,
futures
Futures may mean:
Finance
*Futures contract, a tradable financial derivatives contract
*Futures exchange, a financial market where futures contracts are traded
* ''Futures'' (magazine), an American finance magazine
Music
* ''Futures'' (album), a ...
, etc.). 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.
They are continuation patterns and form when the asset prices rally or fall sharply.
Flag pattern
The flag pattern is encompassed by two
parallel
Parallel is a geometric term of location which may refer to:
Computing
* Parallel algorithm
* Parallel computing
* Parallel metaheuristic
* Parallel (software), a UNIX utility for running programs in parallel
* Parallel Sysplex, a cluster of IBM ...
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. The chart below illustrates a bull flag. A bear flag would trend in the opposite direction.
Pennant pattern
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. 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.
The image below illustrates the pennant pattern.
References
External links
''Differences between a Symmetrical Triangles and Pennant Patterns''at investopedia.com
{{technical analysis
Chart patterns
Technical analysis