What is the Flag Formation?

Flag formation is a chart pattern that occurs in the short-term outlook and signifies the continuation of a trend. The flag formation is not a reversal pattern. The flag formation and the pennant formation are very similar to each other. In short, it can be defined as a short-term consolidation after a sharp upward price movement, with the shape of the consolidated graph resembling a flag. During this consolidation formation, volumes usually remain low. In the formation of the flag, the first movement occurs as a result of a sharp upward movement, forming the flagpole. Investors who miss this movement can follow the flag formation. The flag formation usually lasts around eight bars but never exceeds twenty bars. In consolidations that exceed twenty bars, the initial movement that forms the flagpole loses its strength and the trend weakens. The entry signal comes when the upper point of the flag formation is broken. At this level, there is a noticeable increase in volumes. If the expected increase in volume does not occur, the formation will likely lose its validity. The target price level is usually found by adding the difference between the start of the flagpole and the part where the flag is formed to the point where the flag formation is completed and the upward movement begins.

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