Wednesday, April 17, 2024

The Flag

In this article, We learn about “The Flag”.Let’s Go!

A flag pattern is a continuation chart pattern named for its resemblance to a flag on a flagpole.

Although it is not as popular as the triangle and wedge, traders consider the flag to be an extremely reliable chart pattern.

The

Flag is a relatively fast chart pattern that appears as a small channel following a steep trend and moving in the opposite direction.

After the uptrend, it has a downtrend. After a downtrend, it will trend up.

The previous trend is crucial to the formation of the pattern.

A “flag” consists of explosive, strong price action forming a nearly vertical line.

This is called a “flagpole”.

Bull Flag

After the flagpole is formed, bearish (bullish) traders, eager to take advantage of immediate profits, begin selling (buying) their holdings.

However, this does not result in a rapid price decrease (increase), as bullish (bearish) traders start buying in the hope of taking advantage of future price increases (decreases).

The resulting downtrend (upward) trend channel resembles a downward sloping (upward sloping) parallelogram, giving the chart the appearance of a flag, hence the name.

When trendline resistance on the flag is broken, it triggers the next phase of the trend and price continues to advance.

What distinguishes a flag pattern from a typical breakout or crash is the extreme pattern that represents an almost vertical and parabolic initial price movement.

Flag patterns can be bullish or bearish:

  • The bullish flag is called a bull flag.
  • A bearish flag is called a bear flag.

Breakouts occur in both directions, but almost all flags are continuation patterns.

This means that a flag in an uptrend is expected to break through to the upside and a flag in a downtrend is expected to break through to the downside .

If you want to learn more foreign exchange trading knowledge, please click: Trading Education.

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