The preceding price trend is one of the things to check before trading a flag pattern. On top of that, it should have a consolidation area where the pattern forms. Two other factors are the volume pattern and a breakout point.
What Is Flag Chart Pattern?
Investors say there’s a flag pattern on a price chart when they see a drastic price change. As such, the price in the short period changes from the trend in the previous long period. Hence, the price change displays a pattern that looks like a flag on a pole. This pattern happens during market consolidation after the price makes a sharp move.
You can define the chart patterns flag type by the direction of the flag. If it’s a bearish flag chart pattern, it has a downward price trend. On the other hand, if it’s a bullish flag chart pattern, it’s upward. In either, the bottom tip of the flag reaches above the midpoint of the flag pole.
Trading The Flag Chart Pattern
The best time to trade is when the price is above or below the two parallel trend lines. For example, trade the day after the price breaks and closes above the upper trend line in a bull flag chart pattern.
When Should You Trade A Flag Pattern?
First, wait for the breakout. That way, you don’t enter a flag pattern on a false alarm. Next, set the stop-loss point on the opposite side of the flag. Also, many investors wait for a volume surge. It suggests that more investors are eager for the stock.
How Do You Trade A Bullish Flag Pattern?
First, invest in a chart scanner to find these patterns in real time. Then, set your stop order below the lower end of the flag pattern. Plus, have a profit target. To do that, calculate the difference between the highest point of the flag pattern and the flagpole’s base.
How Reliable Is The Flag Pattern?
Trading a flag pattern is reliable because it makes it possible to enter a trend. Since this is a continuation pattern, the breakout tends to follow the direction of the flag pole. Thus, investors watch the price trend to know when the price may drift.
