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Flag

When a stock has a strong run up over a short period of time, where it gains 30% or 40% or more, there is a tendency for either a correction or a continued advance with even larger gains expected. One chart pattern that sometimes precedes a second large advance is called the "high tight flag". This is a pattern that starts with a flag pole, or price that rises sharply in a short period of time. This is followed by a tight consolidation period that can last between 2 to 6 weeks. The consolidation period creates the formation of a "flag", a break out of such a consolidation period is usually to the upside and can produce gains similar to the percentage increase of the initial gains made during the creation of the flagpole.

During the formation of the flag in the consolidating period volume generally declines. A breakout from the flag pattern is usually accompanied by increased volumes. Price projections that are estimations based on the range of price during the formation of the flagpole are projected upwards from the flag formation on a breakout give a rough idea of what to expect near term for prices. What price projections do not do is tell you whether prices will reach that level or stay at that level. A projection is simply an estimation based on the increased demand for the stock and a potential for a short term continuation of price surge following a consolidation of prices.



 
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