Bull flags and bear flags

A sharp move, then a small rest

A bull flag has two parts. First, a sharp rally. Price moves a lot in a short number of candles. That part is called the flagpole. Second, a small, tight pullback right after the rally. Price drifts sideways or slightly downward for a few candles inside a narrow channel. That part is the flag. Put together, the shape on the chart looks exactly like an actual flag attached to a pole, hence the name.

The pattern is a continuation signal. The interpretation is that buyers ran hard, traders who bought low took some profit, the pullback created an entry zone for late buyers, and then the next leg up begins. A clean bull flag should have a flag that is small relative to the pole. The pole is the show. The flag is the pause. If the pullback gets too deep or lasts too many candles, you are looking at a reversal forming, not a flag.

A bear flag is the flipped version after a sharp drop. The pole is a hard down move. The flag is a small, tight bounce or sideways drift right after. The interpretation is the mirror. Sellers ran hard, short sellers took some profit, the bounce gave late sellers a spot to enter, and then the next leg down begins. Same proportions matter. Small flag relative to the pole. Tight channel. Few candles inside.

One thing flags get wrong in textbooks. The actual statistical reliability of flags depends almost entirely on what made the pole. A pole that came from a major news event has different follow-through than a pole that came from a random spike. A pole on the daily chart is more meaningful than a pole on the 5-minute chart. The shape on the chart only tells you the pattern is there. Whether to trust it depends on what was driving the move and which timeframe it printed on.

Recap: bull flag is a sharp rally plus a small tight pullback, continuation upward. Bear flag is the same flipped after a sharp drop. Small flag relative to the pole is the key proportion. Deep pullbacks invalidate the read.