Chartered Market Technician Practice Exam 2025 – Complete Prep Guide

Flags and pennants are technical analysis patterns that typically emerge after a significant price movement, characterized by a strong advance or decline. The formation of these patterns often indicates that after an initial sharp price change, the market is experiencing a brief consolidation or pause before potentially continuing in the same direction.

A strong advance or decline provides the momentum needed to create these formations. Flags usually appear as parallelograms that slope against the prevailing trend, while pennants form as small symmetrical triangles. The presence of a strong initial move is crucial because it serves as the foundation that traders look for when anticipating continuation patterns.

In contrast, a period of low volatility might lead to other formations but does not specifically characterize the setup for flags and pennants. Similarly, while a consolidation period can occur as part of these patterns, it is the preceding strong move that primarily legitimizes their formation. Reversals in trend indicate entirely different scenarios and are not directly related to flags and pennants.