A Flag can either occur on the daily or weekly charts for me. The Flag pole (first movement) is a very big price increase on huge volume. Volume must be above average, and preferably almost double the average. The price increase must be enough to be conspicuous when looking at the chart. The second part of the Flag pattern is the formation of the Flag. The formation of the Flag is usually between 4-6 bars (4-6 days or 4-6 weeks depending on your chart). It is named the Flag (or Pennant) because the bars get smaller and smaller (less volatility) until the next big price movement occurs. In addition, the volume decreases during these 4-6 bars.
Flags have been known to continue just like a bouncing stock until the increased volume stops and the stock corrects. Below is an example of a Flag pattern in a Stock.
As you can see, the first green arrow signifies the big price movement. Volume is almost 10X average the the price increase was 50%. The next 6 days the stock price stayed about the same but the volatility decrease and the bars got smaller. Then, at the second green arrow, the stock's price increased again by about 15% on 3X average volume. This was followed by 7 days of decreased volatility until today. Today's volume is about 3X average, and the price increase is 14%. I am watching this stock for the next 6 days. If a flag forms, you know what I'll be doing.
