Definition
A flag pattern is a brief consolidation that appears after a sharp, near-vertical price move and then resolves in the same direction as that move. The sharp run forms the flagpole; the consolidation forms the flag, typically a small rectangle or parallelogram that drifts slightly against the trend.
It is a continuation pattern. The flag represents a short pause for breath rather than a change of mind, which is why the prior trend usually reasserts itself afterward.
Why it matters
How it works
After a powerful move, profit-taking and fresh positioning produce a tight, slightly counter-trend drift on lighter volume — the flag. The breakout comes when price exits the flag in the direction of the original move, ideally on a renewed surge in volume.
Traders commonly apply the measure rule by taking the height of the flagpole and projecting it from the breakout point to estimate how far the continuation might run. Light volume inside the flag and heavy volume on the break are treated as confirming evidence.