A flag pattern is a type of continuation chart pattern that derives its name from its resemblance to a flag on a flagpole. The pattern is created by a sharp and significant price movement, followed by a period of consolidation, which forms a rectangular or parallelogram shape.
This consolidation phase is also known as the flag, and it represents a temporary pause in the price movement before the trend continues in its original direction. Flag patterns are considered bullish when they occur during an uptrend and bearish when they occur during a downtrend.
These patterns are commonly used in technical analysis to identify potential trading opportunities and to set price targets and stop-loss levels.