Definition – What does Flag mean?
A flag is a technical analysis continuation pattern where a strong movement in the direction of the primary trend is followed by a period of consolidation before resuming in the direction of the primary trend. The pole of the flag is formed by a sharp breakout above (or below) support (or resistance). The flag itself is a rectangle that is formed by parallel trendlines that slope against the previous breakout. Once the flag is fully formed, another upward (or downward) break signals that the previous trend is resuming.
ForexTerms explains Flag
Like all continuation patterns, the flag can be tricky to properly identify. Flag-like formations can form anytime there is consolidation in a currency pair’s price action. The important criteria is that the flag is preceded by a tall pole – that is, a strong breakout above or below support and resistance levels. The strength of the pole provides more validity to the formation. A strong pole doesn’t eliminate the possibility of a reversal, but it does lower the odds.