A flag pattern is a technical analysis chart pattern that resembles a flag on a flagpole, hence its name. It typically occurs after a strong price movement (the flagpole) and is characterized by a rectangular-shaped consolidation or retracement phase, creating a flag-like appearance on the chart.
Flags are usually sloping against the prevailing trend and can be bullish or bearish. Bullish Flags signal a continuation of an upward trend, while Bearish Flags suggest a potential continuation of a downward trend. Traders often look for flag patterns as potential entry points, considering them a temporary pause before resuming the prior trend.
The breakout from a flag pattern is a key signal for traders, indicating a potential acceleration of the existing trend.