A flag pattern is a technical chart formation that typically occurs during a strong price trend, either bullish or bearish. It is characterized by a brief consolidation period with a rectangular shape resembling a flag, which follows an initial price movement referred to as the flagpole. The pattern signifies a pause in the prevailing trend, often indicating that the trend may continue once the consolidation phase is complete.
In many markets, the flag pattern is viewed as a continuation pattern, suggesting that, after a breakout in the direction of the prevailing trend, traders may see further price movement in that same direction. Traders often look for specific criteria, such as volume changes and breakout confirmations, before establishing positions based on this pattern.