A flag chart pattern appears when the market forms a narrow range right after a sharp move. You can find flags in any time frame. Usually flags consist of five to 15 price bars, yet it is not a settled rule. Flags chart patterns are an excellent trading formula since it provides relatively small risk and quick profits.
This patter has a flag formulated by the price move.
The Specifications of Flag Chart Pattern
The flag portion of this pattern should be between the parallel lines. It can be slanted up, down, or even sideways.
The flags always go in the same direction as the current move. Thus, traders will be happy to see a sharp move higher, then following by a sideways flag or just a flag heading down.
If a down sharp move happens, traders usually trade wait until the sideways higher to trade. The move should be a sharp move or about vertical. Besides, the move should also be larger and swifter than the previous move.
Swift and abrupt movement of the price shows the strong buying or selling action.
Trade with the Flag Chart Pattern
Always enter a trade whenever the price hit above or below the upper or lower flag trend line. Set a stop loss, if you want to, outside the flag on the opposite of the breakout.
It is around $0.01 or $0.02 for the stock market and one or two pips for the forex market. Remember when the parallel lines of the flags are sloping, then the entry point will change over time.
Many consider flags as continuation patterns. That means the breakout has the tendency to happen in the preceding move direction. You will know if the bias is wrong or correct if you examine the price charts.
