3 advanced flag patterns trading techniques

8/12/2019 3 Advanced Flag Patterns Trading Techniques

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Descending

Price action

1

2 3

Ascending

Price Action

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Three (3) opportunities to enter(1) - Best, (2) - Highest Risk, (3) -Confirmation


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3. Sideways Topping Action

1. Sideways Bottoming Action1. Sideways Bottoming Action

Use Fib levels forBUY signals

Use Fib levels for

SHORT signals


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B

A

C

Flags

Parallel

12

3

Can also include the category of chart patterns pennants

Very common chart pattern found in existing trending price

action

Represent a pause or consolidation of price action to

determine whether to continue or reverse movement

Always proceed a dramatic or sharp price action moveAmong the most reliable of continuation patterns

Rarely produce a trend reversal

Easily identifiable by parallel lower and upper boundary of

support and resistance; respectively

Relatively short term countertrend movement in price

action

Technical analysis measurements can be applied to project

future price action continuations

More rapid development in downtrends


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In up trends

The advance in price action often has solid volume and the is strong, which forms

the initial thrust in price actionoften referred to as a flagpole.

The consolidation (i.e., pause & resting period) and slight retracement is narrowprice action with a slight descending movement or is horizontal (but no upward

movement) with volume often contracting during the flag portion of the pattern.

The flag portion of the pattern has highs and lows which can be connected by small

upper and lower trend lines which are parallel, giving the flag portion the look of a

small channel.

Often a measured move method is used to project the price action breakout and

preliminary target area.

Similar commentary for the downtrend


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B

A

C

Flags

Parallel

1

2

3

Signal

2B/3B Candlestick Reversals Crossing MAs RSI Short/Sell signals Stochastic Oversold signals MACD Down trending histogram Volume decreasing Divergence No Upside Follow Thru

Measured move creates the following projections of Leg 1 on to Leg 3


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B

AC

Flags

Parallel3 Basic break down

entry signals

Preliminarytarget

Initial Stop

2

1


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B

A

C

Flags

Parallel

1

2

3Basic break down

entry signal

Preliminarytarget

Initial Stop

Risk2/3 Bar Reversal

patterns


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B

A

C

Flags

1

2

3

Basic break downentry signal

Preliminarytarget

Initial StopFibonacciRetracements

2/3 Bar Reversalpatterns


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B

A

C

Flags

1

2

3

Better entrysignal

Preliminarytarget

Initial StopFibonacciRetracements



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Basic break downentry signalsB

A

C

Flags

Parallel

1

2

3

Preliminarytarget

Initial Stop

Risk

Reversal Patterns &momentum changes


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B

AC

Flags

Parallel3

Drop down to lowertimeframe to see

moreprice action

Preliminarytarget

Initial Stop

2

1


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Notice the higher low and lower high as price actionbreaks out and down respectively

ENTRY

PriceAction

HH

HH

HL

HL

HH

2/3 BarReversal patterns


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Ideal tradingsituation

ENTRY

LONG Entry Up trend Higher Highs & Higher Lows

PriceAction

4

4

4

4

4

4

Natural pullbacks

in price action

Trade # 1 Trade #2 Trade #3

Profit Lose Lose

2R 1R 1R

Setups &Entries ?


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ENTRY

PriceAction

4

4

4

4

4

4 Natural pullbacks

in price action

B

A

C

Flags

Parallel

1 2

3

Higher highs and higherlows provide evidence of

uptrend

Major Up Trend Higher Highs & Higher Lows



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200 MA

20 MA

B

A

C

Flag

Trading against the major trend

12

3

Setup

Signal

2B/3B Candlestick Reversals Crossing MAs RSI Short/Sell signals Stochastic Oversold signals MACD Down trending histogram Volume decreasing Divergence No Upside Follow Thru

Major Trend Higher timeframe uptrend


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200 MA

20 MA

HigherTimeframeDowntrend

SHORT

B

AC

Flags

Parallel1

2

3


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200 MA

20 MA

HigherTimeframeDowntrend

SHORT

RISK

TARGET

ENTRY

STOP


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200 MA

20 MA

Consider

STOP - Trailing 20 MA

HigherTimeframe

Phase 4

SHORT

RISK

TARGET

ENTRY

STOP


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Ideal tradingsituation

ENTRY

LONG Entry Up trend Higher Highs & Higher Lows

PriceAction

Higher

Opening Ranges

B

A

C

Flags

Parallel

1 2

3


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Candlestick ReversalPatterns

CandlestickReversal patterns

(1R)

(1R)Flag Pattern Entry

Flag Pattern Entry


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Learn to use the Best Chart Patterns as opportunities for Free Trades

When price action moves in your favor

There is initially a profit of some size

Initial stop can be moved to minimize or eliminate the initial risk; hence a free trade

The potential target is at risk of being hit

Eliminates the hidden trading-barriers that block you from reaping real trading profits

consistently

Teaches you about the current price action movements and find answers to how you cangenerate consistent profits that have been constantly eluding you

Allows you to accept the natural price action movement (i.e., pullbacks and rallies) and

determine whether to risk some if not all of the profits in order to trade directional trends.


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What are some of these not -so-obvious features offlag patterns?


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Traditional signals (i.e., breakouts/breakdowns) usually are late entries

Often the first breakout/breakdown bar will be a wide range bar making it to late to use a flag

pattern setup strategy

Can use Fibonacci retracement analysis to dramatically improve entries, stops and targets

hence better profits

Higher timeframe location is critical to the opportunity/rewards of flag pattern

Is often a variation of a measure move

Very good confirmation and divergence indicator of trending price action with other technical

signalsCan easily incorporate volume analysis to improve odds of setups

Small and overlapping candlestick bars are a very good characteristic of quality flag patterns


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Scaling-In is the best alternative for trading success! Small incremental positions

Most of the time markets are trading sideways and direction is hard to determine; so we usescaling-in as a risk measure to mitigate error of entries

Use the Market Cycle to identify whether price action is trending or non-trending

Easier to trade more efficiently and effectively with small more frequent positionsDevelops good trading habits for adding to winning trade setups

Scaling-In reduces risk with initial entry

Look for prior pivot highs/lows, flag patterns, broadening patterns and/or triangles forconfirmation of prior move to assist with Scaling-In method.

All-In-At-Once method is considered by traders often too early in their trading careers

Optimal entry for using All-In-At-Once method is at the point of transitions for the beginning ofthe uptrend.


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Learn To Use Simple trading techniques for scalp trading versus complicated Charts Analysis

Have to be able to track and measure performance in real-time constantly

Focus only on trending markets / move in both futures and stocks

Use simple (3) Charts for Trade Analysis consistently on all charts

Identify Market cycles on all (3) timeframes (i.e., 15/5/2 minute charts)

How long has price action been in the current phase?

Is there congruency in the multiple timeframe charts?

Is there congruency between the (4) e-mini futures and/or your stock on same timeframes?

Learn to trade in increments of 2 to 3 trades in same direction at most

Unless you have clear CONFIRMATION of a dominant uptrend on all time frames

MUST keep loses SMALL

MUST have solid RISK and MONEY MANAGEMENT otherwise you WILL have trouble with

trading style!


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Analyzing Flag PatternsReview the average daily trading range to determine if price action isincreasing/decreasing.

Conduct volume analysis to determine whether volume is diverging with price action.Lack of volume to support potential breakout should reduce position size or waitfor breakout confirmation

Review price action on multiple time frames to determine the macro trend.

Trade on the side of the major trend to avoid low odds trades.

Review support and resistance to find risk and reward parameters for setups & entriesat support or resistance.

Look for congruency with E-mini futures for trading opportunities and setups.


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Transition Among Phases

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1

2 3

B

AC

FlagsParallel 12

3

B

A

CFlags

1 2

3


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3. Sideways Topping Action

1. Sideways Bottoming Action1. Sideways Bottoming Action


Indicator provides

signalBuy ShortSOH SOH


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Indicator provides

signalBuy ShortSOH SOH

B

AC

FlagsParallel 12

3

B

A

CFlags

1 2

3

3 advanced flag patterns trading techniques

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