How to Use the Continuation Pattern—Flag Pattern

What Is a Flag Pattern

The flag pattern is a continuation formation that often appears in the middle of a strong, fast-moving uptrend or downtrend. It almost never forms at the very top of a bull market or the bottom of a bear market. Flag patterns come in two types: the bullish flag and the bearish flag.

In most cases, the flag itself represents the entire corrective or retracement phase within a larger trend. Therefore, once a bullish flag completes, the price typically resumes its upward trend; likewise, a bearish flag usually leads to further downside once it breaks.

The name originates from the pattern’s resemblance to a flag attached to a pole. See the illustrations below:

• Bullish Flag

• Bearish Flag

How to Identify a Flag Pattern

• Bullish Flag

1. Appears during an uptrend.
2. Price surges almost vertically with strong momentum, forming the flagpole. It then enters a consolidation phase, oscillating within a narrow range. By connecting the highs and lows of this consolidation area, two parallel trendlines emerge, forming the flag.
3. Trading volume decreases noticeably during the formation of the bullish flag.

• Bearish Flag

1. Appears during a downtrend.
2. Price drops sharply—often at a near-vertical angle—to form the flagpole. A mild rebound then follows, forming a tight consolidation zone that slightly slopes upward. By connecting the highs to highs and lows to lows, two parallel lines appear, forming the flag.
3. Trading volume decreases noticeably during the formation of the bullish flag.

Technical Implications of a Flag Pattern

A bullish flag signals a potential continuation of the uptrend once price breaks above the upper boundary—this is generally interpreted as a buy signal.

A bearish flag suggests further downsides when price breaks below the lower boundary—serving as a sell signal.

Applications of the Flag Pattern

When price breaks above the upper boundary of the bullish flag with a solid bullish candlestick, it indicates a continuation of the upward move.

When price breaks below the lower boundary of the bearish flag with a solid bearish candlestick, it signals a continuation of the downtrend.

Real-Market Examples

Bullish Flag

The figure above shows the BTCUSDT daily chart on Gate futures from January 1 to February 28, 2020. BTC rallied sharply from $10,000 to around $41,000, then entered a consolidation phase, oscillating between $29,000 and $41,000. Structurally, the price gradually formed a bullish flag. When BTC broke above the upper boundary near $36,000 with strong momentum, it initiated another major rally, eventually reaching $64,000.

Bearish Flag

This figure above shows the BTCUSDT daily chart on Gate futures from December 28, 2020 to May 13, 2021. BTC plunged from $69,000 high to $33,000, then entered a consolidation phase, oscillating between $33,000 and $45,000. Structurally, the price gradually formed a bearish flag. When BTC broke below the lower boundary near $40,000, it accelerated downward, eventually dropping to as low as $17,000.

Summary

Flag patterns must appear within a sharp, fast-moving trend—either upward or downward. For a bullish flag breakout, strong supporting volume is essential; otherwise, the breakout may be false.

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Disclaimer

This article is for reference only. Information provided by Gate does not constitute investment advice and Gate is not responsible for your investment decisions. Technical analysis, market judgment, trading strategies, and trader insights may involve potential risks, investment variability, and uncertainties. Nothing in this article guarantees returns or implies risk-free opportunities.