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Forex - Flag Patterns
Flag Patterns in the Forex Market
When
talking about flag patterns, it probably will remind many traders of
wedges and triangles, actually there's no difference among them - they
are short-term continuation patterns. For convenience, we'll call all
these patterns as flag in the rest of the article. Flag is a sharp,
strong rise/fall trend with several bars of sideways price action on
much weaker trade followed by a second, sharp move to new highs/lows.
Flags,
wedges and triangles can be categorized as continuation patterns. They
usually represent only brief pauses in a currency pair. They are
typically seen right after a big, quick move. The price then usually
takes off again in the same direction. Research has shown that these
patterns are some of the most reliable continuation patterns
Flags
are short-term patterns that can last from 1 to 12 bars. There is some
debate on the timeframe and some consider 8 bars to be pushing the
limits for a reliable pattern. Ideally, these patterns will form
between 1 and 4 bars. Once a flag becomes more than 12 bars or more, it
would be classified as a rectangle.
A flag is a small rectangle
pattern that slopes against the previous trend. For a bullish flag
pattern, the flag would slope down; a break above resistance indicates
that the previous advance is resumed. For a bearish flag pattern, the
flag would slope up, a break below support indicates that the previous
decline is resumed.
The biggest difference between flags and
other patterns is that, flags (wedge or triangle) are usually too short
in duration to have any real impact on highs and lows of the price. The
price actions are confined within two parallel trend lines, while other
patterns are not.
The following indications are important when identifying flags.
* Flag patterns occur when a market makes a very strong up /down trend
in prices, followed by a pause or sideways trading for a few price
bars; if the distance of the flagpole is limited, flag will be less
typical.
* Do pay special attention to the slope of flags: if the
slop is consistent with the trend, it's highly possible that it is not
a continuation patterns, but an exhaustion of current trend, full of
risk of reversion.
* The duration of flag. If the duration is
longer than others in current trend, the trend is very near to the end;
discretion is advised.
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| Category: Forex Signals | Added by: forex-market (2009-09-29)
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| Views: 452
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