1. What is a flag pattern?

As a continuation pattern, a flag pattern often appears in the middle stage of a long-term rising or falling trend but is rarely seen at the top of a bull market or the bottom of a bear market. There are two flag patterns: ascending flag patterns and descending flag patterns.

As the flag pattern itself reflects the middle-stage price status in a long-term rising or falling trend, the relevant trend will generally continue after the flag pattern is pieced at the bottom or top. That is, when the ascending flag pattern is broken at the top, the trend will continue to rise, while the trend will continue to fall after the descending flag pattern is crossed at the bottom.

The flag-like shape of the pattern is where it got its name.

• Ascending flag pattern

• Descending flag pattern

2. How to identify the flag pattern

• Ascending flag pattern

1. Indicates a rising market
2. After the sharp rise in coin prices, a flagpole is formed. Then the coin price starts to fluctuate within a certain range. By connecting the high point to the high point and the low point to the low point of the area where trades are made intensively, we can get two parallel lines to form a shape like a flag.
3. The trading volume decreases significantly with the formation of the flag pattern.

• Descending flag pattern

1. Indicates a falling market.
2. The coin price slumps to form the flagpole. Then the price rebounds, and starts to fluctuate gently, forming a sloping-upward price range where trades are finished intensively. By connecting the high point to the high point and the low point to the low point of the area, we can get two parallel straight lines to form a flag-shaped pattern.
3. Trading volume decreases significantly yet in a progressive way as the descending flag pattern gradually forms.

3. Indications

If the top line of the ascending flag is crossed, it suggests a bullish market, and users should go long.

When the bottom of the descending flag is crossed, the market is expected to go down, suggesting investors should go short.

4. Application

1. When the top line of the ascending flag pattern is crossed, it suggests a bullish market, and users should go long.

1. When the bottom of the descending flag pattern is crossed, the market is expected to go down, suggesting investors go short.

5. Use in trading

1. Ascending flag pattern:

The picture above is the daily chart of Gate.io contract BTC/USDT. From January 1, 2020, to February 28, 2020, the BTC rose sharply from $10,000 to around $41,000 and then started to fluctuate in the range of $29000-$ 41000. After the price soared again to break the top line of the flag at $ 36,000, the price went up all the way to reach as high as $ 64,000.

1. Descending flag pattern

The above picture is the daily chart of Gate.io contract BTC/USDT. From December 28, 2020, to May 13, 2021, BTC slumped from $69,000 to $33,000 and then began to fluctuate between $33,000 to $45,000. After the coin price kept dropping to break the bottom line of the flag at $40,000, it went down all the way to as low as $17,000.

6. Summary

The flag pattern can only form in a market that is rapidly rising or falling. For the ascending flag pattern, there are trading volume requirements for identifying whether its top line is truly crossed, and the crossing could be false if the target is not reached.

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Disclaimer

This article is for informational purposes only and does not constitute any investment advice, nor is Gate.io responsible for any of your investments. Content related to technical analysis, market judgment, trading skills, and traders’ sharing cannot be used on an investment basis. Investment may involve potential risks and face uncertainties. This article does not contain or imply any guarantee for returns on any type of investment.