What is Flag chart pattern?
A flag pattern is a trend continuation pattern, appropriately named after its visual similarity to a flag on a flagpole. It is formed by price action, which is contained within a small rectangle or a parallelogram. This is created when there is a minor profit booking in either an uptrend or a downtrend.
How does it work?
Flags are created by a sharp price move, followed by a consolidation which runs between parallel lines. It consists of two parts:
1. Flag pole: It is the distance between the first support level to the high of the flag in case of a bullish flag. For bearish flag, it is the distance between the first resistances to the low of flag/pennant.
2. Body: In case of flag, the body is a small rectangular pattern that slopes against the trend. The rectangle is formed by two parallel trend lines. For example, if the trend was up then the flag slopes down and vice versa.
The breakout forms when the upper resistance trend line breaks as prices surge back towards the high of the formation and explodes through to trigger another breakout and uptrend move. The sharper the spike on the flagpole, the more powerful the bull flag can be & vice versa.
How to Trade with Symmetrical Falling wedge pattern?
· The flag portion of the pattern must run between parallel lines.
· There must be a sharp move higher followed by a sideways flag OR a flag that is slightly angled down.
· If the sharp move is down, then there should be a sideways flag OR angled higher (moving opposite the strong down move).
· The move which precedes the flag portion of the pattern (the pole) must be a sharp move, nearly vertical, and be noticeably larger.