Pennants, Flags and Wedges - Chart Patterns

Pennants look like pennants, flags look like flags and wedges look like wedges. Each are short lived periods of correction and consolidation of well established trends. Pennants and flags usually last from days to a few weeks so they are often seen on daily price charts, seldom on weekly charts and virtually never on monthly ones. Wedges are longer lasting periods of consolidation usually lasting from weeks to several months so are recognizable on daily and weekly price charts and even monthly charts on occasion. Usually volume dries up during the formation of these patterns of price consolidation, particularly with flag formations. In terms of their development, significance and prognostic value they are to be considered similarly. They are invariably brief, midpoint interruptions of the main trend.

Wedges look like triangles with the apex of the triangle pointing counter current to the main trend, i.e. in bull markets the wedge is made by connecting a series of lower highs and a series of lower lows of daily prices and vice versa in a bear market. Wedges can give the appearance of rallies against the trend and can appear as trend reversals, but they are not, they are periods of correction and consolidation during the relentless progress of the main trend, so beware. They are invariably associated with overall and progressive reduction of volume. On completion the volume expands rapidly, often explosively, and prices may progress rapidly, sometimes creating gaps on the breakout.

It is essential that you study the volume accompanying these patterns of correction and consolidation. They should show distinctly lower volume on their development, almost drying up as they approach their termination. If volume is unchanged or increases as these patterns develop beware, you may well be observing a period of major distribution prior to a reversal of the trend.