1. Pennant and Flags is an important formation and every technical chartist worth his salt can not afford to miss this formation as it is a very highly reliable and successful pattern. Pennants/Flags are “Price Pattern” formations which are seen in the market when the stocks have runup sharply in the span of 2-5 sessions. As a net result of this formation one will see a fast runup and same is reflected in an almost vertical rise on the charts.
2. A word of caution is that as a technical chartsist or analyst one has to draw the conclusion with a great care related to Pennant and Flags as all rises will not result in pennants. Thus as a thumb rule a Pennant and Flags formation should be able to satisfy following conditions:
(a) The rise should be fast i.e a verticle rise.
(b) The rise in stock should invariably be be bigger than the usual move in the stock. One can call these moves as abnormal. One must see atleast 4-5% moves before calling a formation as a pennant/flag.
(c) One will see controlled profit booking in a small range with declining volumes post abnormal rise. However a word of caution is that every move followed by a decline with decreasing volumes will not qualify as pennant and flag as this decline
has to be in a small range when compared with the previous vertical rise.
3. Pennant and Flags represent the state for a stock when the stock market operators has discovered some new information on the stock which causes it to be re-rated and mind it that this information may or may not be available to the general public. Its during this re-rating of the stock which can be up or down as per the info effect; that people who who have bought the stock(or shorted) at the beginning of the move start feeling that move has run its course and then try to book profits in a controlled manner. Remember it is this profit booking which causes the stock to form the “Pennant” or “Flag” on the charts. After this formation happens more people jump into the stock thus causing it to go up on increased volumes. One may see this happening at half-way mark on the market re-rating of the stock.
4. Pennant and Flags have a high probability of success i.e. 80 percent if the formation has been identified correctly and stock will make a move equal to the move preceeding its formation.
5. One can view Flag pattern chart here to become a market professional.
