Flags and pennants are both a continuing chart pattern. They are formed during a strong trend, followed by a brief period of consolidation, then a break out.

One of the characteristics of flags and pennants is these chart patterns occur in a brief consolidation period of a fast moving trend. During the consolidation period, traders are exiting their position to take the profit and decides which direction is the next move (usually continues the prior trend).

Another characteristics is the presence of strong trend or the “flag pole”.

Flags

A flag pattern is formed by two parallel trend lines. It look like a rectangle that slopes against the previous trend.

Bull Flag

A bull flag is characterized by a strong upward trend, followed by a consolidation (known as “flag”). In here, the resistance level is parallel to the support level.

The breakout move is expected to be the same as the height of the pole.

We will enter the trade (“long”) when a breakout candle has formed above the resistance level.

Bear Flag

When a parallel resistance and support level is preceded by a strong downward trend, a bearish flag is formed. This pattern is confirmed when a breakout candle appears below the support.

Similar to the bull flag, the price movement is expected to be of the same height as the pole.

In here, we will enter the trade (“short”) when a breakout candle has formed above the support level.

Pennants

A pennant is a smaller version of symmetrical triangle. The distinguishing factors of a pennant are the presence of pole and the shorter period of occurrence.

Bullish Pennant

A bullish pennant occurs when the price consolidates after a strong upward trend with a converging resistance level and support level, followed by a breakout. The currency pair’s price is forming a series of lower highs and higher lows.

This pattern is confirmed when breakout occurs above the resistance level. The breakout move is expected to be the same as the height of the pole.

We go “long” when a candle broke out and closes above the resistance.

Bearish Pennant

When the converging resistance and support level is preceded by a strong downward trend, a bearish pennant is formed. This pattern is confirmed when a breakout candle appears below the support.

Similar to the bullish pennant, the price movement is expected to be of the same height as the pole.

We go “short” when a candle broke out and closes below the support.