The flag represent brief pauses in a dynamic market move. In fact, one of the requirements for the flag is that it preceded by a sharp and almost straight line move. It represent situations where a steep advance or decline has gotten ahead of itself, and where the market pauses briefly to “catch its breath” before running off again in the same direction.
Flag pattern is the most reliable of continuation patterns and only rarely produce a trend reversal. To begin with, notice the steep price advance preceding the formations on heavy volume. Notice also the dramatic drop off in activity as the consolidation patterns form and then the sudden burst of activity on the upside breakout.