Short Term Continuation
Technical analysis is the practice of using past performance of a stock to help determine how it is likely to behave in the future. Over time, trained analysts can learn to spot trends and patterns like the flag, pennant and interpret their existence to know whether an increase or decrease in price is likely to be on its way. While these methods are not failsafe, and often take months of tracking to spot, they are the best way to be sure that you’re investing in a stock with a good future.
The flag, pennant is called a continuation pattern, which means that they can be used to note a small consolidation of price before the previous trend resumes. There are several ways that these patterns can manifest themselves. A flag is a small rectangle pattern that will slope against the direction of the previous trend. A pennant is a small symmetrical triangle that usually begins wide and then becomes narrower as the pattern matures. No matter which you think you might be tracking, it’s important to note that they must be preceded by a sharp increase or decrease in price.
It’s important to point out that a flag, pennant can form when you’re able to draw parallel lines through the peaks and the troughs, which is often possible when a rally is occurring during a down-trend. When this happens, you’ll see that the slope of the lines runs opposite to the direction of the previous trend. The pattern will have reached maturity when you spot a break price that is far outside the parallel lines.