Flag patterns are continuation patterns where price consolidates in a range after a strong move to the upside or downside.
Price is expected to continue in the same direction as the move prior to the consolidation.
For example, a bull flag is formed from a strong move to the upside followed by consolidation, so one could expect the price to continue higher after a flag pattern is formed.
Conversely, a bear flag is formed from a strong move to the downside followed by consolidation, so one could expect the price to continue lower after the flag pattern is formed.
Flag patterns are continuation patterns where price consolidates in a range after a strong move to the upside or downside.
Price is expected to continue in the same direction as the move prior to the consolidation.
For example, a bull flag is formed from a strong move to the upside followed by consolidation, so one could expect the price to continue higher after a flag pattern is formed.
Conversely, a bear flag is formed from a strong move to the downside followed by consolidation, so one could expect the price to continue lower after the flag pattern is formed.
A typical bull flag will consist of a big move up on large volume, followed by price slowly declining on low volume, before an increase in bullish volume and price to the upside.
A typical bear flag will consist of a big move down on large volume, followed by price slowly increasing on low volume, before an increase in bearish volume and price to the downside.
While flag patterns are common across all time frames and often play out as expected, you cannot blindly buy into the move and expect it to play out without identifying the complete pattern:
The flag pole (top or bottom of the impulse move)
The flag (consolidation of the range before breakout)
Many traders will often enter a trade too early or too late on these patterns, with a tight stop loss or none at all.
They either get stopped out or suffer huge losses.
Combining Fibonacci Retracement Tools within the pattern will help you identify entry points based on confluence.
These setups are not exclusively identified with Fibonacci levels. However, this is an important reminder to never trade off a single pattern alone.
Always look for confluence.
Key Points of the Lesson
UTILITY
A flag pattern presents consolidation before trend continuation.
Flags can be traded internally or be used to aim for external price targets.
0.382 is a powerful retracement level for uptrends.
0.786 is an interesting retracement level for altcoins that have had a large move.
IMPLEMENTATION
Created by applying a parallel channel after the impulsing move (the pole).
Use the flag for internal trades / external measured move targets.
Use the Fibonacci retracement tool on the pole to get the 0.382 level.
FIRST PRACTICAL EXAMPLE
TIPS & TRICKS
Volume should decline during the consolidation phase.
Preferably the 0.382 of the pole should be respected.
Flag consolidation time should be short compared to the pole.
Flags can form on any timeframe.
Flags can be sideways and sloping channels
Use confluence for the measured move breakout price target.
0.382 is a key Fibonacci retracement level for a strong uptrend.
0.786 is an important retracement target after large upside moves on Altcoins.
SECOND PRACTICAL EXAMPLE
TAKE HOME MESSAGE
Flags can provide retracement entries and breakout price targets.
Combine with 0.382.
Deep altcoin retracements to the 0.786.