Chapter 14, Part VI. Flags and Pennants.

Part VI. Flags and Pennants.

Commander in Pips: Let’s continue with patterns and shift to the discussion of Flags and Pennants on charts…

Pipruit: Yeah, this is quite pro-army topic, Sir.​

​

Commander in Pips: Heh, right.

Commander in Pips: So, Flags and Pennants are continuation patterns. It looks like triangles, wedges and rectangles, but much smaller and their shape is not so accurate like we saw with former patterns. Usually they appear as pauses in a trend:

Chart #1 JPY/USD Weekly – Flags and Pennants
​

The market mechanics of these patterns is simple. While they show tight consolidation, it tells us that the previous trend is strong and nobody is turning to profit fixing yet – it’s vice versa, people see tight consolidation, understand that nobody is exiting currently, and they jump in the direction of the previous trend. The move usually continues when a significant amount of new participants join the trend.

Commander in Pips: As a rule the slope of these patterns is opposite to the direction of the trend, but this is not absolutely necessary. If the slope coincides with trend direction then it tells us that the current trend is even stronger. Also these patterns could be horizontal instead of sloped:

Chart #2 JPY/USD Weekly – Flags and Pennants with different slopes
​