The technical analysis “Flag” pattern appears on price charts frequently and practically on all timeframes. It can be identified both on five-minute candles and on a weekly chart.
“Flag” shape most often occurs after a strong price movement of the selected asset in one of the directions and is a narrow consolidation zone, usually in the opposite direction from the initial impulse.
The constituent figures of the technical analysis “Flag”
In the “Flag” shape distinguish between: “Shaft” – the initial impulse of the price, and itself “flag” – consolidation, a narrow price channel limited by support and resistance levels. In most cases, the length of the “flag” is one third of the length of the “pole”.
Trading signals of the “Flag” pattern
The technical analysis “Flag” pattern is quite accurate and requires clear targets for taking profits and stop orders. In an upward movement, you should open a long position (BUY) only after the resistance line is broken and the price goes beyond the price channel.
A stop order should be placed at the minimum of point C (the lower point of the correction). The goal is set aside equal to the initial growth – we take as a basis the distance that the price has passed to the narrow consolidation zone. In a bearish trend, the procedure is the same: enter to sell down on the flag breakout, stop is above point C and the target is equal to the initial price move.
The Flag pattern is often confused with figure “Pennant”, which has not parallel straight lines, but narrowed ones. However, both of these technical analysis patterns are continuation patterns, so this confusion will not lead to a minus in the account.
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