Unlock Your Market Wizardry: Conquer the 2025 Chartered Market Technician (CMT) Test!

A flag pattern typically forms as a continuation pattern during a correction in a bull market. The flag shape itself consists of a sharp price movement (the flagpole) followed by a consolidation period that slopes against the prevailing trend (the flag). This consolidation indicates that, despite the temporary pullback, buyer interest remains strong, and the market is preparing to continue moving in the direction of the initial trend—upward in the case of a bull market.

When a flag forms, it reflects the market's ability to absorb profits and allow for a brief pause before resuming the upward movement. This pattern signifies that bullish sentiment still exists, as traders are likely waiting for an opportunity to enter positions before the next leg of the rally. Recognizing this context can be essential for technical analysts and traders who aim to take advantage of the bullish momentum following the flag's completion.

In contrast, the other options do not align with the market context in which flags typically form and highlight other chart patterns or price movements rather than the consolidation that occurs in a bull market.