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Bullish Flag Chart patterns

Flag chart patterns

In this lesson, we shall discuss the following:

1.What is a flag chart pattern?

2.How to identify bullish Flag patterns?

3.How to trade the flag chart pattern?

What is a flag chart pattern?

When a trending price pauses and goes back over slightly in a rectangular range, the flag pattern occurs.

This pattern gives us the opportunity to enter the market in the middle of a trend.

The break out in price continues its original strong trend, gives us the chance to enter that trend at a better price than before the formation of the flag.

How to identify bullish Flag patterns?

The chart below is an illustration of bullish flag chart pattern.


flag chart

We learn the following from the above illustration:

The price experiences a strong uptrend . Then it stabilizes into a rectangular range that slopes downwards.

Then there is a break out of that range and the uptrend continues.

Practice session:

Exercise 1: Find the Flag pattern in the following chart. Show exercise

How to trade the Flag pattern?

We shall take a bullish flag as an example for our discussion. 

The chart below is an illustration.


flag chart

Place your stop loss where the Flags lower trend line reaches its lowest point.

Place your profit target

Flag pole: Calculate how far the price rose in its initial uptrend.  

The profit target is then placed the same distance above the point where the Flags lower trend line ends.

1-Buy Entry

2-Stop loss

3 Take profit

Height of number 2 is the same as the height of number 2

Technique:

“Wait for the price to rise above the pennant’s upper trend line.”

Enter your trade as soon as the price rises above the Flag upper trend line.

Once resistance breaks, place a buy order after the price retests that trend line.

The broken resistance now becomes support level.

The chart below is an illustration:


flag chart

Number 1: Pole of the pattern

Number 2: Area where the resistance line has turned into support

Number 3: Take profit distance (same height as pole number 2)

1 -Buy entry, after the price has bounced off the trend line

2- Stop loss underneath the new support area

3 -Take profit level

Nut Shell

An overview of the lesson discussed so far….

When a trending price pauses and goes back over slightly in a rectangular range, the flag pattern occurs.

This pattern gives us the opportunity to enter the market in the middle of a trend.

The break out in price continues its original strong trend, gives us the chance to enter that trend at a better price than before the formation of the flag.

The flag chart pattern is classified into bullish and bearish.

Trading a bullish flag pattern: Wait for the price to break out of the Flags upper trend line in the direction of the original uptrend. Place a long (buy) order here.

Place your stop loss at the level where the Flags lower trend line reaches its lowest point.

Calculate how far the price rose in its initial uptrend.

Place your profit target the same distance above the level where the Flags lower trend line ends. 

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