The flag and pennant patterns appear on price charts quite often.
” The flag is considered the most reliable pattern in technical analysis. It is a continuation pattern serving as a consolidation period after sharp changes. “
A flag appears when market participants need a sort of a break after bears fix their profits, followed by bulls or vice versa. Of course, they cannot cash in profits simultaneously; that is why a short opposite trend appears. A flag is usually directed in the same way as the trend that dominated when the pattern appeared. A breakout in one direction or another is a sign of uptrend or downtrend continuation. However, if the breach direction is opposite to the major trend, you should be ready for a trend reversal.
” The rectangle is formed when the price is moving between two parallel lines (support and resistance). Highs and lows are located horizontally. “
A rectangle is a pattern indicating a longer price consolidation after a very strong major trend. As a rule, prices exit the rectangle pattern in the same direction they entered it.
” To identify continuation patterns, you can use weekly, monthly, and even intraday charts. “
The following is true for all the mentioned patterns: the more traders discover a pattern, the more chances there are for market shifts. However, remember that different forex time frames imply different patterns.