Bull and bear flags are continuation patterns consisting of a sharp price move (the flagpole) followed by a brief, counter-trend consolidation channel (the flag). Bull flags slope downward after an upward pole; bear flags slope upward after a downward pole. These patterns represent a pause in strong momentum before the trend resumes, and they are among the most commonly traded continuation setups.
Flagpole: a strong, near-vertical price move on high volume. Flag: a parallel channel sloping against the trend direction. Volume contracts during the flag formation and expands on the breakout. Duration: the flag typically lasts 1-4 weeks on daily charts. Measured-move target equals the length of the flagpole added to the breakout point.
Enter on a breakout from the flag in the direction of the flagpole with volume confirmation. Aggressive entry near the lower boundary of a bull flag or upper boundary of a bear flag. The flag should retrace no more than 38.2-50% of the flagpole. Momentum indicators should remain in bullish or bearish territory during the flag consolidation.
Primary target equals the flagpole length projected from the breakout point. Place stops below the flag's low (bull flag) or above the flag's high (bear flag). Trail stops using the flag's trendline once the breakout confirms. Exit if the flag retraces beyond 61.8% of the pole, as this weakens the pattern.
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The strongest flags form after impulsive, high-volume moves that break through significant levels. A flag that trades sideways rather than slightly against the trend shows even greater underlying strength. Volume contraction during the flag is essential — without it, the pattern may evolve into a reversal.
The head and shoulders is one of the most reliable reversal patterns in technical analysis. It consists of three peaks — a higher central peak (the head) flanked by two lower peaks (the shoulders) — connected by a neckline drawn across the reaction lows. A break below the neckline confirms the reversal, with the measured target equal to the distance from the head to the neckline projected downward from the breakout point.
Double tops and double bottoms are two-touch reversal patterns that form when price tests the same level twice and fails to break through. A double top signals bearish reversal after an uptrend, while a double bottom signals bullish reversal after a downtrend. The pattern is confirmed when price breaks the support or resistance level formed between the two peaks or troughs.
The inverse cup and handle is a bearish continuation or reversal pattern that mirrors the bullish cup and handle formation. It consists of a rounded top (the inverted cup) followed by a brief upward consolidation (the handle). The pattern indicates that buying attempts fail to sustain higher prices, and the handle's upward drift represents a final weak rally before sellers take control, breaking price below the handle's support.
Triple tops and triple bottoms are reversal patterns where price tests the same level three times before reversing. They are essentially double tops and bottoms with an additional test, making them rarer but potentially more significant. The three-touch structure confirms that a price level is acting as a strong barrier, and the eventual break of the pattern's support or resistance level triggers the reversal.