The Flag & Pennant Pattern
Flags and Pennants can be categorized as continuation patterns. They usually represent only brief pauses in a dynamic stock. They are typically seen right after a big, quick move. The stock then usually takes off again in the same direction. Research has shown that these patterns are some of the most reliable continuation patterns.
Pennants look very much like symmetrical triangles. But pennants are typically smaller in size (volatility) and duration. Volume generally contracts during the pause with an increase on the breakout.
Bullish flags are characterized by lower tops and lower bottoms, with the pattern slanting against the trend. But unlike wedges, their trend lines run parallel.
Bearish flags are comprised of higher tops and higher bottoms. "Bear" flags also have a tendency to slope against the trend. Their trend lines run parallel as well.
A variation of the Flat Base is the extremely powerful base known as the Bull Flag. A Bull Flaf occurs after a stock has advanced extremely fast - often doubling in a month or two. The stock then forms a new Flat Base that is normally rather short. When the stock breaks through this Bull Flag base, it usually picks up right where it left off, once again taking off for a rapid advance.