Bull flags and bear flags: how to read them, and how they fail

A flag is one of the easiest chart patterns to spot once you know its shape. It has two parts: a sharp move (the "pole") and a short, tight pause (the "flag") that drifts slightly against that move. Traders read it as a market catching its breath before it carries on, but, like every pattern, it doesn't always play out.

What a bull flag looks like

1. The pole. Price rises quickly, over a handful of bars. On PipSwipe, a pole has to be at least three times the market's average bar size (its ATR) in 3 to 12 bars, so a slow grind higher doesn't count.
2. The flag. Price pauses. It moves sideways or drifts lower in a narrow band, usually for 4 to 25 bars, and gives back no more than about half of the pole.
3. The break. A candle closes above the top of the flag. That close is what completes the pattern. Until then, it's only a pause.

A bear flag is the mirror image: a sharp drop, a tight pause that drifts sideways or up, then a close below the bottom of the flag.

Flags and pennants

If the pause narrows into a small triangle instead of a parallel band, it's usually called a pennant. The reading is the same: sharp move, quiet pause, break in the direction of the pole.

What makes a flag weaker

• A deep pause. If price gives back more than half the pole, the "pause" looks more like a reversal.
• A long pause. The longer the flag drags on, the less it's a pause and the more it's a new range.
• A flag against the bigger trend. A bull flag on a 1-hour chart while the 4-hour chart is trending down has less behind it. This is why PipSwipe shows the bigger timeframe's trend next to every pattern.
• A break without momentum. A close above the flag while momentum indicators still point down is a thinner break.

How a flag fails

The most common failure is simple: price closes above the flag, then falls straight back inside it. Traders call this a false break. A close below the bottom of a bull flag cancels the pattern entirely.

A pattern describes what price has done. It doesn't tell you what price will do next. Plenty of well-formed flags go nowhere.

Practise spotting them

The fastest way to get a feel for flags is to see lots of them. In PipSwipe's Chart school, the Chart patterns track shows you real charts stopped right where a flag completed. You call what happened next, then see the rest of the chart and the key lesson.