Moderna, Inc. (NASDAQ:MRNA) shares are trading higher on Monday. This follows Friday’s gain of more than 12%.

A classic ‘flag’ pattern has formed on the chart. In this situation, the pattern is bullish and suggests a continued move higher. This is why Moderna is the Stock of the Day.

If market leadership shifts from bulls to bears, or from bears to bulls, price action can appear as a reversal pattern on a chart.

If the change is slow and takes place over an extended period of time, a ‘rounded’ top or bottom may form. If the change occurs in a single day, a reversal day or an engulfing pattern may form.

The flag pattern isn’t a reversal pattern. It is a continuation pattern. These appear when the current trend takes a short break before getting back into gear. This flag pattern formed during an uptrend, which could mean the rally will continue.

Many technical analysts try to identify chart patterns without understanding the dynamics that make the pattern form.

A flag forms after a rapid move higher. Some of the buyers start to believe that they are the ones pushing the price up. They think that if they leave the market for a few days, the price will fall and they will be able to complete their orders at a lower price.

Because they step away, the price drops a little. When they come back into the market after a few days, the rally resumes.

The first defining characteristic of the flag pattern is a significant drop-off in volume. The second characteristic is the short time period. If these two conditions do not occur, then it is not a flag pattern.

Technical analysis has a dubious reputation, and unfortunately, it deserves it. Many analysts don’t understand the price action and dynamics that make chart patterns form. This is why they are not successful.

The flag pattern on the chart of Moderna could mean the shares will continue to move higher.

MRNA Price Action: Moderna shares were up 1.54% at $68.30 at the time of publication on Monday. The stock is trading near its 52-week high of $69.28, according to Benzinga Pro data.

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