Module 6A: Chart Patterns · Lesson 3 of 4 · Back to course
Trends rarely move in a straight line. They surge, pause, and sometimes surge again. Continuation patterns are names for those pauses. This lesson covers flags, pennants, triangles and wedges, and the honest limits of each.
Flags
What it looks like: a sharp, almost straight move (the pole), followed by a small channel that drifts gently against the trend (the flag).
Trigger: a close beyond the edge of the flag in the direction of the pole.
Measured move: some traders project the length of the pole from the breakout point. As always, it’s a rough guide.
Pennants
Like a flag, but the pause forms a small symmetrical triangle instead of a channel. Price narrows into the point before (sometimes) breaking out in the direction of the pole.
Triangles
- Ascending triangle: flat resistance on top, rising lows underneath. Often read as bullish.
- Descending triangle: flat support underneath, falling highs on top. Often read as bearish.
- Symmetrical triangle: falling highs and rising lows. Read as neutral – it can break either way.
Triangles show volatility shrinking. A breakout often comes with a pick-up in volatility, but the direction isn’t guaranteed – including for the “bullish” and “bearish” versions.
Wedges
Both lines slope the same way and converge. A rising wedge (both lines up, narrowing) is often read as bearish; a falling wedge as bullish. They are among the most subjective patterns to draw.
Where they break down
- The pause turns into a reversal. A “flag” that keeps drifting is often a new trend starting.
- Fakeouts. Price pokes out of the triangle, triggers orders, then falls back inside.
- Late in the trend. A flag after a long, extended move is less convincing than one early in a fresh trend.
- Drawing them to fit. If you have to adjust your lines several times, the pattern probably isn’t there.
Example (illustrative numbers)
All figures are made up for teaching purposes. They aren’t real prices or a trade idea.
GBP/USD rises from 1.2600 to 1.2680 in four strong hourly candles: an 80-pip pole. It then drifts down in a tight channel to 1.2655 over the next eight candles. The top of the flag channel is at 1.2665.
- A close above 1.2665 would complete the flag.
- A stop below the flag low, 1.2650, is 15 pips from a 1.2665 entry.
- The pole projected from the breakout: 1.2665 + 0.0080 = 1.2745.
Risking £50 on a demo account gives a stake of about £3.33 per pip (£50 ÷ 15). Remember the spread and slippage can be a large share of a 15-pip stop, and a flag breakout can easily fail and reverse.
The prop firm angle
Continuation patterns keep you trading with the trend, which tends to be kinder to a challenge account than repeated reversal trades. The risk is chasing: entering late after the breakout candle with a stop far away. Decide in your plan the maximum distance from the trigger you’ll accept for an entry.
Key takeaways
- Continuation patterns are pauses inside trends: flags, pennants, triangles and wedges.
- They complete on a close through the edge of the pattern in the trend’s direction.
- Triangles show shrinking volatility; the breakout direction isn’t guaranteed.
- They’re most convincing early in a fresh trend, least convincing after a long extended move.
Quick quiz
- What is the “pole” in a flag? (The sharp move before the pause.)
- How is a pennant different from a flag? (The pause is a small symmetrical triangle, not a channel.)
- Which triangle has a flat top and rising lows? (Ascending.)
- Pole of 60 points, breakout at 7,500 (uptrend). Where’s the pole projection? (7,560.)
- Why is a flag late in a long trend less convincing? (The trend may be exhausted; the pause can turn into a reversal.)
Key terms
Flag · Pennant · Triangle · Wedge · Consolidation · Fakeout · Measured move
Try this
On a 1-hour chart, mark 10 flags or pennants with a strict written definition (for example, pole at least 2 ATR, pause no longer than 10 candles). Record how many broke out with the trend, how many broke the other way, and how many just drifted.
FAQ
Do triangles always break out in the direction of the trend? No. Any triangle can break either way. Wait for the close through the line.
Do I need volume to confirm a breakout? Some traders like rising volume on breakouts. In forex you only have tick volume, which is a rough stand-in.
Disclaimer: This page is general education, not financial or investment advice or a personal recommendation, and it doesn’t take your circumstances into account. Examples are hypothetical, for illustration only, and not an invitation to buy or sell. Learning a strategy doesn’t guarantee profits. Past performance is not a reliable guide to future results. Futures, spread bets and CFDs are complex and carry a high risk of losing money quickly because of leverage, and most retail traders lose money. With a real futures account, losses can exceed your deposit. Only trade with money you can afford to lose, and speak to an independent FCA-authorised adviser if you’re unsure. Read our full risk warning.