Forex Trend Continuation: The Flag Pattern

Forex traders who use technical analysis should be familiar with the chart patterns that confirm and reinforce the existing trends. Those formations are generally known as continuation patterns. The most common of them are flags, triangles and wedges.

Flag Continuation Pattern

The flag formation gives signals for the direction and the target price.

This chart pattern represents a short consolidation period formed within a sharp price movement. A support line and a resistance line provide the borders of the consolidation until the price breaks out. These lines are parallel to each other or as in some cases happen slightly converge to one another, which makes the formation appear as a flag. Additionally, generally the flag is not perfectly flat, but tends to be sloped in the reverse direction from the slope of the original trend. The sharp trend that comes before it looks like a flagpole.

The flag continuation pattern is considered complete when the price breaks out in the same direction of the sharp price movement preceding the pattern. The breakthrough should be accompanied by heavy market volume in order to increase the significance of the chart pattern.

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