Continuation Patterns: Flags, Pennants and Triangles

Trends rarely move in a straight line. After a strong push, price usually pauses while early traders take profit and new traders wait for a better price. These pauses often take recognisable shapes called continuation patterns. When the pause ends, the trend frequently continues with a move about as large as the one before it.

Bull flags and bear flags

A bull flag has two parts:

• The pole: a fast, strong rally, usually on rising volume.
• The flag: a small, orderly pullback that drifts slightly down or sideways in a narrow channel, usually on falling volume.

The flag shows that sellers cannot do much damage. When price breaks above the top of the flag, buyers are back in control. A bear flag is the same shape upside down in a downtrend.

Trading a flag

• Entry: a close above the flag's upper line (or below the lower line for a bear flag).
• Stop: below the flag's low.
• Target: add the height of the pole to the breakout point.

The best flags are short. If the pullback retraces more than about half of the pole, it is no longer a flag but a deeper correction.

Pennants

A pennant is a flag that narrows into a small symmetrical triangle instead of a channel. It is traded the same way: enter on the breakout in the trend's direction, stop beyond the pennant, target equal to the pole.

Triangles

Ascending triangle

Flat resistance on top and higher lows underneath. Buyers keep stepping in earlier, squeezing sellers against the same ceiling. A break above the flat top is a bullish signal. Target: the height of the triangle's widest part added to the breakout.

Descending triangle

Flat support with lower highs above it. Sellers are getting more aggressive. A break below the flat support is bearish.

Symmetrical triangle

Lower highs and higher lows converge. It shows indecision, and it usually breaks in the direction of the existing trend. Because both sides are active, wait for the breakout candle to close before you act.

Rules that filter out bad breakouts

1. Trade with the trend. Continuation patterns are strongest when they point in the direction of the higher-timeframe trend.
2. Look for volume. A real breakout usually comes with a volume surge. A breakout on thin volume is suspicious.
3. Wait for the close. Intrabar spikes through a line often reverse before the candle ends.
4. Respect the retest. Many breakouts come back to test the broken line. That retest is a second, lower-risk entry.
5. Mind the news. A breakout minutes before a major release such as CPI or NFP can reverse violently.

Where traders go wrong

• Drawing a "triangle" from only two touches. You want at least two touches on each line.
• Entering in the middle of the pattern, where the risk to reward is poor.
• Placing stops inside the pattern, where normal noise will hit them.
• Using the same size for every trade instead of sizing from the stop distance.

Find breakouts with Alice

The Alice scanner tags fresh breakouts and breakdowns, volume spikes and trend agreement with the higher timeframe on every market. Filter the scanner by "Breakout" to see which flags and triangles are resolving right now, then open the chart to check the pattern.

Frequently asked questions

This guide is for education only and is not financial advice. Trading involves a high risk of loss. Test any method on a demo account first and never risk money you cannot afford to lose.