Flag Pattern: High Probability And Easy to Identify Forex Trend
The flag pattern is an easily recognizable Chart Pattern and can generate high profits. Consider trading guides with flag patterns in the following article.
Chart Pattern is one of the breakout of the bankrupt traders who have considered themselves deceived by the outcome of the indicator. Most traders start learning with the mindset: the price can tell you everything that happens in the market. Incidentally one of the easiest Chart Patterns is the Flag pattern.
What is Flag Pattern?
Flag pattern or flag pattern is a pattern of candlestick formation that is often formed and easily recognizable. This pattern often appears when the trend condition is strong, and hints forwarding the direction of the trend. Pattern Flag is a famous Chart Continuation pattern and is widely applied in traders all over the world. This pattern is often grouped with Pennant and Rectangle. This grouping occurs because the three patterns are very similar from the display side, where they appear, the accompanying Volume, and how they are used. The main difference is only in the form.
This pattern is often described as a break from the large market movements. Some traders also often likens this pattern as a marker of a market that is taking a breath to get back on its way.
Famous for having a high probability with an adequate Risk / Reward ratio rate, the formation of Flag patterns is usually initiated by a sharp rise or fall in prices . From the extreme movement usually will occur due to the correction of profit-taking conducted by traders before the spike. After a correction to some point, there will be many traders coming in to resume this movement.
Forms and Movements of Flag Patterns
The Flag pattern will usually appear in a shape similar to the Rectangle pattern . This pattern starts from a strong price movement then stopped by a price reversal that makes up the Channel with 2 pieces of parallel Trendline. In its naming, this powerful price movement will be referred to as Flag Pole .While the price reversal will be called channel flag .
Both trendline lines will be Support and Resistance . The price will continue in the Trendline until the breakout occurs on one side. In trading with Flag patterns, the channels formed must be opposite to the direction of price spikes . Keep in mind that the Flag pattern will not immediately form after the Reversal in every major move. Typically, this pattern is newly formed in a stable trend. From its own direction, trading with Flag pattern is divided into bullishFlag pattern and bearish flag pattern.
As the example below, after the price soared to form Flag Pole, Channel Flag should be aiming downwards, forming a bullish Flag pattern.
Vice versa for bearish flag pattern. After the price drops down and forms the Flag Pole, Channel Flag should be leaning towards the top.
Trading With Flag Patterns
Trading with Flag pattern also has certain rules in running it. These rules are designed so that the level of profitability is higher. The following entry rules should be applied to the Flag pattern.
In trading using Flag patterns, you must wait until a breakout occurs on Channel Flag. Entry can be done by installing a Pending Order or waiting for a pullback that occurs after the breakout.
Stop Loss on trading using Flag patterns placed at the low / high Channel level formed. Uptrend, SL is placed on the Low Channel, while Downtrend, SL is placed on the high Channel.
High profit is one of the advantages of Flag pattern. The initial price spike and Retracement aims to lure the traders who missed or did not get in during the initial movement. Therefore, the Take Profit value on trading with the Flag pattern is placed equal to the length of the Pole .
Trading Tips With Flag Patterns
1. Observe Volume On Pole And Channel Flag
FOREX technical analysis is done by observing the repetitions that occur in the price pattern and the indicator of the previous price. This also applies to Flag patterns. Quoted from the book “Technical Analysis For Mega Profit”, a good Flag pattern will be followed by certain Volume patterns . Consider the example image below.
A good Flag pattern has a Pole that is accompanied by high Volume and Channel levels aligned to Low Volume. During Channel breakout , Volume increase will occur again. High volume during breakout in ipun vary, can be as high as Volume on Flag Pole or higher.
2. Wait Until Channel Flag Form Perfect
Channel is a very neat set of prices that can be connected to parallel parallel lines. Keep in mind that Channel Downtrend, formed from the order of Higher High and Lower High , and vice versa.
This knowledge can be a weapon for Flag pattern validation . Before waiting for the breakout that occurs on the Channel, it’s good to wait until Channel is completely formed. Only then can traders wait for a breakout to happen or even go straight into the market .
3. Use Fibo as Additional Help
In the Flag pattern trading, you can also use Fibonacci Retracement as a confirmation tool. Once Flag Pole is finished and Flag channel starts to form, you can pull Fibo Retracement from 0% level at Pole top to 100% level at the bottom.
In a good Flag pattern, the price will not close below the 32% level . It can be a powerful auxiliary weapon. You can start at 23% or 38% by installing SL at the 50% level.