A bullish chart pattern developed by two rallies separated by a brief consolidating retracement period is known as a bull flag.
The flagpole is formed almost vertically on price increases as sellers turn a blind eye to buyers, then a pullback with parallel trends up and down, that create the flag.
The initial rally ends with some profit margins and the price forms a narrow range leading to slightly lower levels and lower heights.
At the end, the price rises and forms an orderly pullback where the highs and lows are literally parallel to each other, forming a sloping rectangle.
This shows that the market has still favorable circumstances although the eliminating some large long positions and entering short positions in search of a reversal forces traders to push the price downwards.
During the consolidation, traders should be ready to respond if the price breaks above the upper range level and / or sets a new high as this indicates that the bulls are back in control to move on to another rally.
Upper and lower trendlines are plotted to reflect the parallel diagonal nature.
The breakout occurs when the upper resistance trend line breaks again as prices surge back towards the high of the formation and explode through to trigger another breakout and uptrend move.
If the flagpole has sharp spike, then the bull flag would be more powerful.

The bear flag is an upside-down version of the bull flag.

A

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