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The Yellow Flag
The Yellow Flag Is Defined In Appendix H of the International Sporting Code As Follows:

15.5 Yellow flag - Stationary: Danger, slow down, no overtaking.

15.6 Yellow flag - Waved: Great danger, slow down considerably, no overtaking, be prepared suddenly to change from the projected racing line or take other evasive action, be prepared to stop, if necessary.

15.16 At an incident where the track is obstructed, or marshals are working at the trackside; the following signals should be used: 15.17 A Stationary Yellow at the post before a Waved Yellow.

15.18 A Waved Yellow at the post immediately, preceding the incident. NB. In very serious cases, this flag may be supplemented by and additional waved yellow flag at a preceding post.

15.19 A Stationary Green at the post immediately after the incident.

15.20 If the incident is well off the track and marshals are not working at the trackside, the incident may be indicated by a stationary yellow, followed by a stationary green.

The Yellow Flag is also used when the safety car is out: See Safety Car For Details.

In practical terms, the yellow flag is the most important flags. The flagger should always have the yellow flag close to hand, as an incident can happen very quickly, and if drivers approaching see the flag quickly, it can prevent an incident getting substantially more serious. It is also important not to be too "trigger-happy" in waving the yellow flag. If a flagger waves a flag for minor incidents, then if a major incident occurs, the drivers are more likely to ignore it, and there is no way of upgrading the urgency of the incident if it gets more serious.

It is very difficult for the flagger at the previous post to put out a steady preceding yellow flag, if the flagger is holding a steady yellow, then waving it, then holding it steady, and waving it again every time cars pass. If your arm is getting tired waving the flag, slow down the wave when there is no traffic rather than holding it steady, or swap the flag into your other hand.