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Bull Flag Pattern

• Sharp Move: To be considered a continuation pattern, there should be evidence of a prior trend. There should be an evidence of a sharp advance, usually on heavy volume that can contain gaps. This move usually represents the first leg of a significant advance and the flag is merely a pause.
• Flagpole: The flagpole is the distance from the first resistance break to the high of the flag. The sharp advance that forms the flagpole should break a trend line or resistance level. A line extending up from this break to the high of the flag forms the flagpole.
• Flag: A flag is a small rectangle pattern that slopes against the previous trend. If the previous move was up, then the flag would slope down. If the move was down, then the flag would slope up. Because flags are usually too short in duration to actually have reaction highs and lows, the price action just needs to be contained within two parallel trend lines.
• Duration: Flags are short-term patterns that can last from 1 to 12 weeks. There is some debate on the timeframe and some consider 8 weeks to be pushing the limits for a reliable pattern. Ideally, these patterns will form between 1 and 4 weeks. Once a flag becomes more than 12 weeks old, it would be classified as a rectangle. The reliability of patterns that fall between 8 and 12 weeks is debatable.
• Break: For a bullish flag, a break above resistance signals that the previous advance has resumed.
• Volume: Volume should be heavy during the advance or decline that forms the flagpole. Heavy volume provides legitimacy for the sudden and sharp move that creates the flagpole. An expansion of volume on the resistance break lends credence to the validity of the formation and the likelihood of continuation.
• Targets: The length of the flagpole can be applied to the resistance break of the flag to estimate the advance or decline.