The shortest-lived patterns, and among the more useful ones precisely because they are brief. A flag is a sharp move followed by a small, quiet drift the other way.
Flag
Two parts: the pole — a strong, near-vertical move on expanding range — and the flag, a tight rectangle or small channel drifting gently against the direction of the pole.
The rules that keep it honest:
- The flag should be short. A pause lasting as long as the pole is not a pause.
- The flag should be shallow — typically retracing no more than about half the pole.
- The flag should be quiet. Range should contract, not stay wide.
A bear flag is identical with the signs reversed.
Pennant
A pennant is a flag whose pause is a tiny symmetrical triangle instead of a rectangle. Same logic, same rules, shorter still. There is no meaningful difference in how you trade them.
Rectangle
Price chops sideways between two flat levels for an extended period. It is the simplest pattern in this course and the one most often traded badly, because a rectangle has no directional bias until it breaks — and people trade the top and bottom of it as if it will last forever.
Rectangles are more useful as context than as a signal: a long rectangle after a strong trend is usually continuation; a long rectangle at a major high is often distribution.
Why these are genuinely useful
Flags and rectangles give you something the bigger reversal patterns do not: a tight, obvious invalidation. The far side of the pause is a specific price, so the risk is small and definable. That is worth more than a clever target.
How to check this yourself
Scroll a trending daily chart and find every place price paused for three to ten bars. Note the pole length, the pause length, and what happened next. You will find that pauses shorter than the pole resume far more often than long ones — which is the whole case for trading these.