What best describes a flag pattern in stock trading?

A flag pattern is characterized as a short-term consolidation phase that occurs after a strong price movement, typically in the opposite direction of the preceding trend. This means that after a bullish move, the flag itself will slope downward, forming a rectangular shape or channel that appears on the price chart. Traders interpret this pattern as a pause before the price continues in the direction of the previous trend.

The formation provides a visual indication that the market may be taking a breather before resuming its upward trajectory. The shorter duration of this consolidation, combined with the opposing slope to the preceding move, distinguishes the flag pattern from other formations and highlights its significance in technical analysis.

Understanding this definition is important because it helps traders identify potential breakout opportunities, particularly when the price moves above the upper boundary of the flag after it has formed. This behavior aligns well with traders' strategies aiming to capitalize on continuation patterns.