Flag, Pennant, and Wedge Patterns

Continuation patterns signal that the existing trend is likely to resume after a brief pause.

Bull Flag Pattern


A bullish continuation pattern after a strong move up.

Structure

• Flagpole: Strong, steep price advance with high volume
• Flag: Small rectangular consolidation that slopes against the trend (downward)
• Breakout: Price breaks above the flag with volume

Measuring Target

• Measure the height of the flagpole
• Add that distance to the breakout point
• This gives your minimum price target

Trading Rules

1. Wait for a strong impulse move (flagpole)
2. Let price consolidate in a channel
3. Enter on breakout above the flag
4. Stop loss below the flag low
5. Target: flagpole height projected from breakout

Bear Flag Pattern

The mirror image of a bull flag:

• Flagpole: Sharp decline
• Flag: Small upward-sloping consolidation
• Breakout: Price breaks below the flag

Pennant Pattern

Structure

• Pole: Strong price move (similar to flag)
• Pennant: Converging trendlines (triangle shape)
• Breakout: Price exits the triangle in trend direction

Key Differences from Flags

• Flag has parallel lines, pennant has converging lines
• Pennant typically has declining volume during formation
• Breakout is usually earlier (within 1-3 weeks)

Rising Wedge

Bearish Signal

• Both trendlines slope upward
• Upper trendline is flatter than lower
• Price makes higher highs and higher lows but at a decreasing rate
• Breaks down eventually

Trading Strategy

• Short on break below lower trendline
• Stop above recent swing high
• Target: height of widest part of wedge

Falling Wedge

Bullish Signal

• Both trendlines slope downward
• Lower trendline is flatter than upper
• Converging pattern with decreasing range
• Breaks up eventually

Trading Strategy

• Buy on break above upper trendline
• Stop below recent swing low
• Target: height of widest part of wedge

Volume Confirmation

During Formation

• Volume should decrease as pattern forms
• Shows consolidation, not distribution

On Breakout

• Volume should increase significantly
• 50%+ above average volume is ideal
• Low volume breakouts often fail

Best Practices

1. Look for flags in strong trending markets
2. Wait for the breakout - do not anticipate
3. Flags that form for 1-3 weeks are most reliable
4. Use the flagpole to set your profit target
5. Always check volume for confirmation