The flat pattern is probably one of the most well used patterns, due to its simplicity in the way that it looks, and the way it is traded. We have got a very simple and basic couple of drawings here. We have here, two flags, one in the bullish market, where the market is going upwards. The other one is the right is in a bearish market, where the market goes downwards. The reason why it is called, because, it resembles a flag. What we have got here is a flagpole, as the market has started to trend upwards. And then we have an area of consolidation here, marked by two red lines, which is the actual flag itself.
In terms of its characteristics, in a bullish flag, we have a market trending upwards, and then an area of consolidation It is very rare for a market to just trend upwards, and keep going up and up. If it has to continue upwards, then there needs to be an area of consolidation, where it simply runs out of steam. Finally, it breaks out of consolidation. During the period of consolidation, the market simply reenergizes itsself and then continue in the original trend direction.
On the right, we have got a bearish flag, which is a flag that occurs in a downtrend. We have a flagpole which starts from the top here, and then an area of consolidation. Finally, it breaks out of the consolidation, and then continues in the direction of the downtrend.