Chart Patterns: Triangles, Flags, and Pennants

Triangles, flags, and pennants are consolidation patterns that typically resolve in the direction of the prior trend. Recognizing these patterns allows traders to identify potential continuation setups with defined entry points, price targets, and stop levels. The key is understanding the geometry of each pattern and applying consistent measurement rules.

Triangle Patterns

Triangles form when price contracts into a narrowing range, with converging trendlines connecting highs and lows. Three types exist, each with distinct implications.

Symmetrical Triangle

Structure: Both the upper trendline (connecting lower highs) and lower trendline (connecting higher lows) angle toward each other at roughly equal angles.

Formation requirements:

• At least two reaction highs and two reaction lows
• Price swings decrease in amplitude as the pattern develops
• Volume typically declines during formation

Breakout direction: Can break either way, but tends to resolve in the direction of the prior trend. A symmetrical triangle after an uptrend more often breaks upward; after a downtrend, more often breaks downward.

Measured move target:

1. Measure the height of the triangle at its widest point (first reaction high minus first reaction low)
2. Add that distance to the breakout point for upside targets; subtract for downside targets

Example:

A stock consolidates in a symmetrical triangle:

• First reaction high: $54.00
• First reaction low: $46.00
• Triangle height: $54.00 - $46.00 = $8.00
• Upper trendline breakout point: $51.50

Upside target: $51.50 + $8.00 = $59.50

Stop placement: Below the lower trendline or the most recent swing low within the triangle (e.g., $49.00 if that was the last higher low).

Ascending Triangle

Structure: Flat upper resistance line connecting equal highs; rising lower trendline connecting higher lows.

Implication: Buyers are increasingly aggressive (willing to pay higher prices), while sellers defend a fixed resistance level. This typically resolves with an upside breakout.

Formation requirements:

• At least two touches of the flat resistance level
• At least two higher lows forming the ascending lower trendline
• Volume often contracts during formation

Measured move target: Height of triangle (resistance minus first low) added to the breakout level.

Example:

• Flat resistance at: $72.00
• First low in pattern: $65.00
• Triangle height: $72.00 - $65.00 = $7.00
• Breakout above $72.00

Upside target: $72.00 + $7.00 = $79.00

Stop placement: Below the most recent higher low or the ascending trendline.

Descending Triangle

Structure: Flat lower support line connecting equal lows; falling upper trendline connecting lower highs.

Implication: Sellers are increasingly aggressive (willing to accept lower prices), while buyers defend a fixed support level. This typically resolves with a downside breakdown.

Measured move target: Height of triangle subtracted from the breakdown level.

Example:

• Flat support at: $38.00
• First high in pattern: $45.00
• Triangle height: $45.00 - $38.00 = $7.00
• Breakdown below $38.00

Downside target: $38.00 - $7.00 = $31.00

Stop placement: Above the most recent lower high or the descending trendline.

Flag Patterns

Flags are short-term consolidation patterns that form after a sharp, steep price move (the "flagpole"). The consolidation takes the shape of a small parallelogram that slopes against the prior trend.

Bull Flag

Structure:

1. Sharp advance (flagpole): Strong upward move, often on increased volume
2. Consolidation (flag): Price drifts lower in a parallel downward-sloping channel
3. Breakout: Price resumes the uptrend, breaking above the upper channel line

Duration: Typically 1-3 weeks; shorter than most triangle patterns

Volume pattern: High volume on the flagpole, declining volume during the flag, volume expansion on breakout

Measured move target: Add the flagpole length to the breakout point.

Example:

• Flagpole start: $62.00
• Flagpole end (flag top): $74.00
• Flagpole length: $74.00 - $62.00 = $12.00
• Flag consolidation low: $70.00
• Breakout above flag resistance: $73.00

Upside target: $73.00 + $12.00 = $85.00

Stop placement: Below the low of the flag ($70.00) or below the lower channel line.

Risk per share: $73.00 - $70.00 = $3.00 Potential reward: $85.00 - $73.00 = $12.00 Reward-to-risk ratio: 4:1

Bear Flag

Structure:

1. Sharp decline (flagpole): Strong downward move
2. Consolidation (flag): Price drifts higher in a parallel upward-sloping channel
3. Breakdown: Price resumes the downtrend, breaking below the lower channel line

Measured move target: Subtract the flagpole length from the breakdown point.

Example:

• Flagpole start: $88.00
• Flagpole end (flag bottom): $76.00
• Flagpole length: $88.00 - $76.00 = $12.00
• Flag consolidation high: $80.00
• Breakdown below flag support: $77.00

Downside target: $77.00 - $12.00 = $65.00

Stop placement: Above the high of the flag ($80.00) or above the upper channel line.

Pennant Patterns

Pennants are similar to flags but form a small symmetrical triangle rather than a parallel channel. They represent brief consolidation before the prior trend resumes.

Bull Pennant

Structure:

1. Sharp advance (pole): Strong upward move with momentum
2. Pennant: Small symmetrical triangle with converging trendlines, sloping slightly down or horizontal
3. Breakout: Price breaks above the upper trendline

Key difference from bull flag: The consolidation converges (pennant) rather than drifts in a parallel channel (flag).

Duration: Very short, typically 1-2 weeks

Measured move target: Add the pole length to the breakout point.

Example:

• Pole start: $41.00
• Pole end: $52.00
• Pole length: $52.00 - $41.00 = $11.00
• Pennant upper trendline breakout: $50.50

Upside target: $50.50 + $11.00 = $61.50

Stop placement: Below the pennant's lower trendline or the apex of the pennant.

Bear Pennant

Structure:

1. Sharp decline (pole): Strong downward move
2. Pennant: Small symmetrical triangle, sloping slightly up or horizontal
3. Breakdown: Price breaks below the lower trendline

Measured move target: Subtract the pole length from the breakdown point.

Volume Confirmation

Volume behavior provides important confirmation for all these patterns:

During formation:

• Volume should decline as the pattern develops
• Declining volume indicates decreasing selling pressure (for bullish patterns) or buying pressure (for bearish patterns)

On breakout:

• Volume should expand significantly (ideally 50%+ above average)
• Breakouts on low volume are more likely to fail

Volume threshold example:

Average daily volume: 500,000 shares Minimum confirmation volume on breakout: 750,000 shares

If breakout occurs on 400,000 shares, the setup is suspect. Consider waiting for a pullback and retest of the breakout level with better volume.

Pattern Failure Recognition

Not all patterns complete as expected. Recognize failure signals:

Premature breakout: Price breaks out before the pattern is sufficiently developed (less than 2 touches on each trendline for triangles), then reverses.

Low-volume breakout: Breakout occurs on volume below average, then price falls back into the pattern.

Throwback/pullback that fails: After breaking out, price returns to the breakout level but then continues moving in the wrong direction.

Time exhaustion: Triangles should break out before reaching the apex. A breakout very close to the apex often lacks momentum.

Stop-loss protocol for failed patterns:

If long after an upside breakout and price closes back inside the pattern, exit on that close rather than waiting for your original stop. The pattern has failed.

Risks and Limitations

False breakouts are common. Price may briefly exceed pattern boundaries before reversing. Waiting for a close outside the pattern (not just an intraday breach) reduces false signals.

Subjectivity in drawing trendlines. Different traders may draw pattern boundaries differently, leading to different entry and target levels.

Measured moves are estimates, not guarantees. The calculated target represents a typical outcome based on historical pattern performance. Price may fall short or exceed the target.

Market conditions matter. Continuation patterns work best in trending markets. In choppy, range-bound conditions, patterns form but breakouts fail more frequently.

News events override patterns. A triangle breakout target becomes irrelevant if unexpected news causes a gap through multiple support or resistance levels.

Next Steps

1. Scan recent charts of stocks in your watchlist for triangles, flags, or pennants currently forming and mark the pattern boundaries with trendlines
2. For any identified pattern, calculate the measured move target and determine where your stop would be placed to quantify the reward-to-risk ratio before any breakout
3. Note the current volume during formation and set a volume threshold for breakout confirmation (typically 1.5x average daily volume)
4. Track the outcome of identified patterns over the next several weeks, recording whether they broke out in the expected direction and whether they reached the measured target
5. Review failed patterns to identify what warning signs were present (low volume breakout, premature breakout, excessive time near apex)

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Related: Fibonacci Retracements and Extensions | Breakout and Breakdown Confirmation Rules | Support, Resistance, and Trendline Construction

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Source: Bulkowski, Thomas N. Encyclopedia of Chart Patterns (2021). CMT Association, Technical Analysis: The Complete Resource for Financial Market Technicians.