A flag chart pattern in technical analysis is a continuation pattern that occurs when the price of a security moves sharply (the flagpole) and then consolidates within a small, parallel range (the flag) before continuing in the direction of the original trend. It resembles a flag on a flagpole, hence the name. This pattern is commonly used by traders to predict future price movements, often signaling a pause before the price continues its previous trajectory.

There are two types of flag patterns: bullish and bearish. A bullish flag forms after a strong upward price movement, where the consolidation occurs with a slight downward or sideways bias, signaling that buyers are preparing to push the price higher. Conversely, a bearish flag forms after a sharp decline, with a minor upward or sideways correction, indicating a continuation of the downward trend.

Flags are often seen as reliable indicators because they suggest a period of consolidation before the price continues in the direction of the trend. Volume typically decreases during the flag’s formation, followed by an increase as the price breaks out. Traders use flags to identify potential entry points during these brief pauses, positioning themselves for the continuation of the trend, with the expectation of profiting from the subsequent move in the market.