Flag and pennant
A short breather after a sharp move. Most often the move continues the same way.
Flag and pennant — what it is?
A flag is a short correction inside a sloping channel after a strong impulse. A pennant is the same thing, except the correction compresses into a small triangle.
Both patterns describe one state: the move has happened, the market is resting, some participants are taking profit.
The value here is not the pattern itself but the fact that an impulse almost certainly left an imbalance behind. The correction is often going to close exactly that.
Flag and pennant — how it is built?
A flag slopes against the direction of the impulse. Look not at the shape but at where the imbalance sits inside the correction and where the impulse came from — that is your zone of interest.
Flag and pennant — common mistakes
Entering on a flag without marking up the zone: that is an entry by eye.
Calling every pause a flag.
Holding a position once the correction has grown deeper than the impulse. That is no longer a flag.
Ignoring that the second half of the impulse may have been a climax rather than a beginning.
Related to
Glossary
- flag
- a short correction in a sloped channel after an impulse.
- short
- selling in expectation of a fall. You sell what you do not own and buy it back cheaper.
- channel
- two parallel lines that bound the move above and below.
- impulse
- a fast directional move with large candles.
- pennant
- the same as a flag, but shaped like a triangle.
- triangle
- converging support and resistance lines.