Five Chart Patterns Every Trader Should Be Able To Recognize (Part 4)

04/10/2008 12:00 am EST


Flags & Pennants

Flags and pennants are perhaps the most common of continuation patterns. Spotting a flag or a pennant usually begins with noticing the flagpole, or for more practical purposes, the trend line. Flags and pennants typically form after a substantial trend up or down as an indication that the price is consolidating, or being tested before continuing in the initial direction of the trend. Often the consolidation period (the flag or pennant) is slanted in a direction opposite of the initial trend, this demonstrates the market's hesitation to continue upwards or downwards, but ultimately it is nothing more than a brief hesitation and an indication to the trained eye that there is safety in staying with the initial trend.

Though both flags and pennants indicate a continuation of the current trend, there is a distinct visual difference between the two. The flag will be represented by a more rectangular consolidation period, both support and resistance levels will be about an equal distance from one another. A pennant on the other hand, will be represented by support and resistance levels that are moving toward one another in the shape of a asymmetrical triangle. Both the flag and the pennant are always spotted at the end of the flagpole, or at the end of a sharp directional trend.

Pattern #5 tomorrow.
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