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Key Takeaways
- A flag combines a sharp pole with a short pause between roughly parallel boundaries.
- A bull flag follows an advance and breaks upward; a bear flag follows a decline and breaks downward.
- This bull example projects an $18 pole from the $113.90 flag low to $131.90.
- Name the trigger before the break: the falling upper line at $115.10, the $117.50 flag high and the $118.20 close fire at different prices.
- Size from the fill: entry at $118.20 with a stop at $113.89 risks $4.31 a share against $13.70 to the target, a 3.18 ratio.
What is a flag pattern?
A flag pattern is a continuation chart pattern in which a sharp price move, the pole, is followed by a compact pause between roughly parallel boundaries. In a bull flag, the pole rises and the pause drifts down or sideways before an upside break. In a bear flag, the pole falls and the pause drifts up or sideways before a downside break.
A Pennant uses converging pause boundaries. Both start with a pole, and both project its length for the target.
Formula
Pole length = pole high − pole low; bull low-anchor target = flag low + pole length; bear high-anchor target = flag high − pole length; breakout-price alternative = selected price ± pole length- Measure the sharp move that precedes the flag.
- The bull example uses a $100–$118 pole and a $113.90 flag-low anchor.
- A $118.20 close anchor instead gives $136.20, so the anchor choice moves the target $4.30, the gap between the two anchors.
- Use the flag high and subtract the pole length for the corresponding bearish projection.
Bull flag example
A stock advances from $100 to $118, then forms a descending flag. The pause reaches a $117.50 high and $113.90 low. Its parallel boundaries slope downward by $0.40 per plotted observation. The breakout closes at $118.20, above both the current $115.10 upper line and the earlier $117.50 flag high.
- Pole length: $118 − $100 = $18
- Flag-low target: $113.90 + $18 = $131.90
- Breakout-close alternative: $118.20 + $18 = $136.20
- Entry $118.20 − stop $113.89 = $4.31 risk
- Entry-to-target distance: $131.90 − $118.20 = $13.70; ratio $13.70 / $4.31 = 3.18
The example reaches $134.80, clearing the $131.90 target by $2.90. The $136.20 close-anchored alternative stays $1.40 out of reach, so the anchor choice decides whether this trade books its target. The $113.89 stop sets the planned $4.31 risk.
At the breakout observation, the upper line is $115.10. The $118.20 close clears both that line and the earlier $117.50 flag high. Each is its own trigger, so a trader buying the line break enters lower than one who waits for the flag high.
How to calculate a flag target, entry and stop
This example projects from the flag low: $113.90 + $18 = $131.90.
A breakout-close anchor gives $118.20 + $18 = $136.20, a target $4.30 higher because the close sits $4.30 above the flag low. Pick the anchor before the break, since it moves the target by that full gap.
Enter at $118.20 with a stop at $113.89, just below the flag low. The risk is $4.31 a share, and the $13.70 distance to the target gives a 3.18 ratio.
The example reaches $134.80, clearing the target by $2.90.
Compare participation with Relative Volume. Load the pole-length target and your expiration into the Options Profit Calculator, which shows each call or spread’s breakeven, maximum loss and payoff at that target.
Bear flag example
The reflected example falls from $120 to $102, then forms a rising flag with a $106.10 high. Its $101.80 breakdown produces an $88.10 high-anchored objective: $106.10 − $18.
A $101.80 short entry and $106.11 stop give the same $4.31 risk and $13.70 distance to target. The breakout-close alternative is $83.80.
Limitations of the flag pattern
- Wait for the breakout. Until it prints, the pause can break the other way or widen into a longer range.
- Pick the target anchor before the break. The same chart gives $131.90 from the flag low and $136.20 from the breakout close, and this example clears the first and stops short of the second.
- Draw both boundaries and name the trigger line before the break. Whether lines are roughly parallel or converging decides flag or pennant, and the current sloping line and the earlier flag high trigger at different prices.
- Mark the pole base where the sharp move starts. A different base changes the pole length and the target.
- Fix the chart interval before drawing the flag, and compare volume against baselines from that same interval.
Bottom line
A flag pattern marks a short pause inside a sharp move, and the pole length gives a measured target once price breaks out in the direction of that move. Name the breakout event, target anchor and stop reference before the break, and size the trade from the entry-to-stop distance.
Clear answers
Frequently Asked Questions
Sources and Further Reading
- Fidelity Learning Center: Identifying Chart Patterns
- Fidelity Learning Center: Identifying Chart Patterns With Technical Analysis (transcript)
- Fidelity: Technical Analysis Learning Center
- Fidelity Technical Indicator Guide: Volume
How entries are sourced, calculated and updated: editorial methodology.