A flag is a technical charting pattern that looks like a flag on a flagpole and suggests a continuation of the current trend. Flags are areas of tight consolidation after a sharp movement in price and typically consist of between five and 20 price bars. The bottom of the flag should not be lower than the midpoint of the flagpole that preceded it. Likewise, "pennant" formations are usually treated like flag formations because they are very similar in appearance, tend to show up at the same place in an existing trend, and have the same volume and measuring criteria.

Flags and pennants are among the most reliable continuation patterns that traders use. The only difference between the two patterns is that a flag resembles a parallelogram (or rectangle) marked by two parallel trend lines that tend to slope against the prevailing trend. The pennant, however, is identified by two converging trendlines and more horizontal which resembles a small symmetrical triangle. The important thing to remember is that they are both characterized by diminishing trade volume, and though different, the measuring implications are the same for both patterns as demonstrated in the above illustration. (To learn more, see: What are the Fundamental Differences between a Pennant Pattern and a Flag Pattern?)