Flag pattern and its Types
Thirty Fifth session of Forex Training
Welcome back to Forex professional training in financial markets.
In this session Flag pattern and its types and details will be discussed.
Flag is a continuation pattern, like a real flag, has a rectangular shape which is formed on a shaft.
The horizontal rectangle is formed by several waves with a moderate slope or level peaks and valleys.
A Bullish Flag pattern can be formed on an upward trend, in which waves may have a level shape or a gentle downward slope.
Flag with a level and steady zigzag swings would have more effect and power rather than the flag with a moderate slope towards the bottom.
Height, H, can be measured by calculating the distance between the starting point on the shaft and the peak of the first wave.
TP price would be H and H/2 pips above a Breakout point or a valley of the last wave, while SL can be between the valley of the last wave and 61.8% level of Fibonacci that is drawn on H.
A Bearish Flag can be formed on a downward trend, in which waves may have a level shape or a gentle upward slope.
Flag with a level and steady zigzag swings would have more effect and power rather than a flag with a moderate slope towards the top.
Height, H, can be measured by calculating the distance between the starting point of the shaft and the valley of the first wave.
There are some important notifications:
- Shaft can either be a very long candle or consist of a multiple connected small candles with the same direction.
- If a trader draws a Fibonacci pattern on the shaft, the flag must not reach the 61.8% level of the Fibonacci pattern, otherwise this Flag pattern would not be valid anymore.
- If a flag reaches the region between 50% and 61.8% of Fibonacci, TP would be 27% of a shaft away from 0% Fibonacci. It means that if a trader enters -0.27% level in Fibonacci Retracement, TP would be on this level, with agreeing orientation to the current direction that the flag has formed on.
- In a Bearish Flag pattern, a trader must connect the 1st valley to the 2nd valley to draw the neckline. A peak should be formed between the 1st and the 2nd After the 2nd valley, market price should increase to form more waves. Whenever a market price crosses the neckline, a Breakout point will be made.
Some examples would clarify how to exploit this pattern on trades. There is a Bearish Flag on a downtrend with a moderate upward flag.
TP can be specified by using the Trendline, which is drawn on H, and by relocating the given Trendline to a peak of the last wave or a breakout point.
Trader could derive profit from this trade by placing a Sell order with an entry price of a breakout point, SL over peak of the last wave to 61.8% of Fibonacci, in addition to specified TP price, 1183 pips lower than the breakout point.
Just another Bearish Flag after previous pattern. By drawing Fibonacci on a new shaft, H and H/2 can be calculated.
Fibonacci should be replaced to a breakout point or a peak of the last wave to specify the exact place of TP price.
Price has met 50% of Fibonacci, thus it may proceed to -0.27% level of Fibonacci.
Trader can add the new level through Fibo Levels of Fibo properties window.
Trader can enter M in a Description field. If a trader does not change the location of Fibonacci, price would fall to M level.
Another consecutive Flag pattern can be detected. On an upward trend, trader can find a Bullish Flag pattern.
Trendline specifies a shaft and a rectangle of the given Flag pattern.
It was assumed that price would reach TP price.
It would be more appropriate to consider TP price by placing H Trendline on the last valley rather than the breakout point.
Flag pattern would be abundant with satisfactory efficiency in a volatile markets.
There would be a short and small Flag pattern on a trend that a trader must detect to develop his/her trading ability.
That concludes this session, until next time and another session take care.