A flag formation in a chart is a continuation pattern that appears after a strong and sharp price move, known as the flagpole. After this initial move, the price consolidates in a small, sloping, rectangular range that looks like a flag, usually moving slightly against the prevailing trend. This period of consolidation represents a pause where traders take profits before the next move. When the price breaks out of the flag pattern in the direction of the prior trend, it typically signals a continuation of that trend with momentum similar to the initial move. The target is often estimated by adding the height of the flagpole to the breakout point.