Flags and pennants are very short consolidation periods that appearwithin a fast moving trend. Both are preceded by a sharp move that isnearly a vertical line, and both show consolidation against thedirection of the trend. The flag is a pattern formed by two parallellines sloping against the trend, while the pennant is a pattern of twoconverging lines that appear very similar to the triangle or the wedgeformation.
The downtrend of EUR/USD started since Mar2005. There was a plungeat the end of May, and then it started the consolidating period, whichwas represented by the flag pattern. Notice the flag sloped against thedominant trend on the chart. At the beginning of September, the trendresumed after the price fell below the flag.



As with the previous patterns we have discussed, the breakoutsignal on a flag or a pennant almost always occurs in the direction ofthe original move, and when the market breaks out it usually movesdecisively to continue the trend. Of course, since the pennantformation is in the shape of a triangle, it does fall into the categoryof triangles that has been previously discussed. What distinguishes thepennant, though, is the speed with which the market moves both beforeand after the pattern is created.