Flags and Pennants are considered to be Continuation patterns because after a relatively short period of time where the pattern shows up, the chart will continue to follow in the same direction it was going before it hit resistance. Flags and Pennants are generally grouped together because they both will usually appear after a rapid increase (or decrease) in price. this is movement is referred to as the flag pole. What happens next determines if we have a Flag, Pennant, or neither.

As you can see in Figure 1 and 2, a Flag chart pattern will take on the shape of a 'Flag', hence the name. If you draw a line over and above your support and resistance points, you should have two lines that are running parallel to each other in the opposite direction of the previous chart direction. Take a look at Figures 1 and 2 again, and notice how the Bullish Flag pattern happens when the charts direction is heading UP and then meets some resistance, after a few ups and downs comprising of lower tops and lower bottoms, a nice 'Flag' pattern emerges and then when it breaks free, the chart will continue in its previous direction. You generally need at least 4 points (total) touching the top and bottom lines to make the pattern you can have more, but any less and you wont have a pattern. The bearish indicator is exactly the same, but for a downward direction of the chart, where the resistance will show higher tops and higher bottoms.

Figures 3 and 4 show Bullish and Bearish Pennant patterns. The Pennant chart pattern follows the exact same principles as the Flag, except instead of two parallel support and resistance lines, you have two lines that take on a triangle pattern (it will usually be a symmetrical triangle). In a Bullish and Bearish Pennant patterns, your 'pennant' section will be comprised of lower tops and higher bottoms.

For both Flags and Pennants, a general rule of thumb is to put your target price at the same level above the break out point, as the length of the flag pole. I personally, prefer to use other technical indicators to let me know when the current level has hit its peak, but following this rule of thumb allows you to have a decent target in mind.

figure 1: Bullish Flag		figure 2: Bearish Flag
figure 3: Bullish Pennant		figure 4: Bearish Pennant

As you can see in Figure 5, which is a real example of a Flag pattern, these patterns don't always show up looking exactly like the basic drawings I gave above. But you can see the pattern (in green). The flag pole took a little bit longer to find the top, and the 'flags' lines are not perfectly parallel, but the pattern is there, and when the stock price broke out of it, the price continue to increase for another good gain.

Figure 5: Real Example of Flag pattern, TSX: HGU, supplied by StockCharts.com

I hope the Flag and Pennant chart pattern will help you in your investment desicions. For more information on chart patterns and links to other chart pattern articles check out the article: Introduction To Chart Patterns

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