Flag Pattern

Posted in Finance, Accounting and Economics Terms, Total Reads: 339
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Definition: Flag Pattern

A term related to technical analysis, a flag is a shape (pattern) in stock prices of a company. A sudden decline or rise in stock price of a company followed by a price which is within a narrow range for some time and then again a sudden rise or fall, opposite to that of the previous action. Hence, making a shape of flag.

 

Explanation

Technical analysis primarily deals with the shape of curves. Flag is a special type of shape which can be observed in stock price movements. The shape closely resembles the shape of a flag hence the name FLAG. When a share price of a company suddenly rises or falls followed by a price within a narrow range for some time. Then the analysts believe that such movement will again be followed by a steep rise or fall. Whichever is opposite to the first movement, complete action is defined as a flag shaped curve.

 

Example:


As we can see from the above picture the price of the stock rose at start and then remained within a range for some time. The flag shape has been highlighted above.


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