After an impulse leg, healthy trends don't reverse — they REST. A flag is that rest: a shallow, drifting pullback against the trend on shrinking energy. The psychology: early winners take profit, latecomers get shaken, but no real opposition appears. When the drift breaks back in the trend's direction, the next leg begins.
What separates a flag from a reversal
- DEPTH: healthy flags give back a third or less of the impulse. Retracing most of the leg is not rest — it's a fight.
- ENERGY: flag candles should be smaller and overlapping. Big committed candles against the trend are opposition, not drift.
- TIME: flags resolve fairly quickly. A 'flag' that lasts longer than the leg that built it is just a new range.
The entry is the break of the flag's drift line in the trend's direction, stop beyond the flag's far extreme. You're risking the pause to win the next leg — usually 2R+ geometry when the impulse was real.