In financial markets, a flag pattern is a technical analysis chart pattern that typically appears as a small rectangle or parallelogram, resembling a flag on a flagpole. It occurs within a trending market, either upward (bullish) or downward (bearish), and signifies a brief pause or consolidation before the resumption of the prevailing trend.

A bullish flag pattern forms during an uptrend when the price temporarily consolidates in a tight range, forming a rectangular shape. This consolidation represents a period of rest or profit-taking before the bulls regain control and push the price higher. Once the consolidation phase is over, the price usually breaks out of the flag pattern in the direction of the original uptrend, indicating a continuation of the bullish momentum.

Conversely, a bearish flag pattern occurs in a downtrend when the price experiences a temporary consolidation, forming a flag-like shape. This consolidation phase suggests a pause in the selling pressure, but it's often followed by a continuation of the downtrend as bears regain control and push the price lower.

Both bullish and bearish flag patterns are considered reliable continuation patterns by traders and analysts, providing valuable insights into potential future price movements within the context of an existing trend. Traders often look for confirmation signals such as increased volume or specific price levels to validate their trading decisions based on flag patterns.