How are Flag and Pennant chart patterns formed on a technical price chart, and how is the profit target determined upon breakout?

[ A ]Formed by drawing random circles around moving average crossover points with zero price correlation.

[ B ]Flags apply only to government bonds, while Pennants apply exclusively to foreign currency options.

[ C ]A flag pattern signals that all market trading must stop permanently for 12 months.

[ D ]Formed when a sharp, nearly vertical price advance (the flagpole) is followed by a brief sideways/downward consolidation in a small channel (flag) or converging triangle (pennant); upon breakout above the upper boundary, the profit target is projected by adding the height of the flagpole to the breakout level.[ CORRECT ]

Takeaway

Option D is correct: Formed when a sharp, nearly vertical price advance (the flagpole) is followed by a brief sideways/downward consolidation in a small channel (flag) or converging triangle (pennant); upon breakout above the upper boundary, the profit target is projected by adding the height of the flagpole to the breakout level.

Derivation

Flags and Pennants are reliable, high-velocity continuation patterns: (1) Formation: Initiated by a rapid, powerful, high-volume price thrust (the 'flagpole'). Price then pauses to digest gains in a tight, short-duration consolidation with declining volume—a Flag consolidates within a small rectangular downward/horizontal channel, while a Pennant consolidates within a tiny symmetrical triangle. (2) Breakout & Target: When price breaks out decisively above the upper trendline on expanding volume, the prior uptrend resumes. The minimum theoretical price target is measured by projecting the vertical length of the flagpole upward from the breakout point. This tests continuation patterns. The common error is mismeasuring target projections.

Why the others fail

A — Formed by drawing random circles around moving average crossover points with zero price correlation.

Flags and pennants are structured geometric price-volume continuation formations, not random circular markings.

B — Flags apply only to government bonds, while Pennants apply exclusively to foreign currency options.

Flags and pennants appear and are traded universally across equities, indices, commodities, and foreign exchange markets.

C — A flag pattern signals that all market trading must stop permanently for 12 months.

Flag patterns represent brief consolidation breathers during strong trends and do not cause market trading halts.