M4 · Part 1 — Continuation patterns · Lesson 23/144
7 min 50 XP
A flag is the simplest continuation pattern. First comes a pole — a sharp, almost vertical move driven by strong momentum. Then price pauses in a flag: a small, tidy consolidation that drifts gently against the move (a slight pull-back channel) or coils into a tiny triangle (a pennant). The pause lets early traders take profit and new traders climb aboard, then the original trend resumes with the same force.
The classic target for a flag is the height of the pole, projected from the breakout of the flag — as if the flag sits halfway up the full move. So you measure the pole, add it to the breakout point, and that is your objective. Enter on the close out of the flag in the trend’s direction; stop just beyond the far side of the flag.
A bear flag is the exact mirror in a downtrend. The pole is a sharp drop; the flag is a weak, drifting bounce *up* against it (profit-taking by shorts, hopeful buyers stepping in); then price breaks down out of the flag and the decline continues. The target is the pole’s height projected *down* from the breakdown. The trap is identical, just flipped: never buy the hopeful bounce — it is the flag, not a reversal.
The mistake that kills flag trades
Trading the flag itself. The little counter-trend drift tempts beginners to fade it — to short a bull flag because "it is dropping". That is backwards. The flag is noise; the trend is the signal. Trade the breakout in the direction of the pole, never against it. And if the "flag" drifts too far or lasts too long, the momentum is gone — skip it.