The Flags and Pennants Pattern
The foreign exchange flag and pennant pattern is a short-term congestion pattern that allows price movement formations within one to five weeks. This short-term congestion pattern may appear confusing at first but is not as confusing once studied.
The Flags and pennants chart, similar to the head and shoulders chart, can be categorized as continuation chart patterns. These short-term congestion patterns have stood the test of time as one of the most reliable methods of technical analysis. The flag and pennant pattern focuses only on short pauses in a dynamic market. Flag and pennant patterns commonly appear after a major movement in price. In short, Flags and pennants charts, represent short pauses in trends that are busy consolidating and are reliable continuation signals in a strong trend.
A Forex flag is noted when parallel trend lines can be constructed through the peaks and the lows during a down trend price rally. The drawn trend line slope will counter towards the direction of the current trend. The Forex flag will be completed at the point when a breakout occurs outside the parallel lines. Forex Bullish flags are identified by lower peaks and lower troughs, with the pattern countering against the trend. Unlike wedge patterns, their trend lines will run parallel. Forex Bearish flags are identified by higher peaks and higher bottoms. Forex Bear flags will tend to slope against the current trend movement. As with bullish flags, their trend lines will run parallel as well. There are many traders who agree upon the reliability of flags that slope towards the direction of the current trend.
Forex Pennants patterns are very similar to those of the symmetrical triangle chart. The only difference between forex pennant patterns and symmetrical triangle pattern is the typical smaller size and duration of the pennant pattern. In short, the FX trading pennant pattern can be viewed as short-term triangles.
foreign exchange flag and pennant patterns are very similar in character. Why do they carry different names, although so similar? There exists a difference in the construction of these flags and pennants charts. The flag pattern is similar to a parallelogram – constructed with two parallel trend lines, sloping in the opposite direction of the current trend movement.
In an uptrend the flag pattern would have a slight downward slope. On the other hand, in a downtrend the flag pattern would have a slight upward slope. The pennant is different, and identified by two converging trend lines. This pattern chart is more horizontal and evolves in the shape of a small symmetrical triangle. Both FX trading flag and pennant patterns take much less time to form in a period span of 1 to 2 weeks.
Both Forex flag and pennant patterns have equal volume formation and they are measured by the same criteria and both are invaluable to Forex traders.