Bear flag, bull flag, bearish pennant and bullish pennant chart patterns represent brief pauses after sharp moves in a dynamic
market. They are considered as most reliable continuation patterns. Flags are
characterized as short-term channels slanting against the main trend. Pennants
represent short-term triangle formations. Volume is heavy during the sharp move
preceding the formation.
Trading technique:
# 1 Flags and pennants present an additional opportunity to enter the
dynamic market.
Tips:
# 1 Usually flags and pennants represent short-term pauses technically
required to reset overbought/oversold technical indicators and allow
further movement. They likely to appear at earlier stages of the larger patterns,
when short-term technical indicators are grossly overbought/oversold, but
long-term indicators are in the middle range. In a situation when both long and
short-term indicators are overbought (oversold), flags and pennants have more
chances to become the beginning of a larger formation. Flags and pennants are
considered invalid as soon as they break the parent's formation trend line.
# 2 As a continuation pattern, rectangle usually appears within a young
trend characterized by neutral long-term indicators and overbought/oversold
short-term indicators. Rectangle resets daily CTI to neutral and then continues the
movement in parent's direction.
# 3 For the best results, chart patterns should be considered together with other technical analysis signals and technical trading techniques.
Estimated Target: projected support/resistance level of larger trend.
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