Sometimes there will not be specific reaction highs and lows from which to draw the trend lines and the price action should just be contained within the converging trend lines. Yes No Please fill out this field. Before you sign out, make sure you also read our 2 Keys to Success to further enhance your trading experience. Without a sharp move, the reliability of the formation becomes questionable and trading could carry added risk. The reward or profit target is based on the strong movement of the flag pole. In essence, you risk a little to gain a lot more which is the thing that most traders should strive for. In negative divergence, price makes a higher high, but price makes a lower high.
Once the flag pole and a flag or pennant have formed, traders watch for the price to breakout above the upper flag/pennant trendline. When this occurs, enter a long trade. The above pattern is bullish, because the pattern started with a sharp rally.
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The flag pole; The flag; A strong up trend; First identify an instrument in a strong up trend (flag pole). Through the duration of this uptrend, eventually prices need to rest and consolidate those gains. This price consolidation becomes the ‘flag’ of the pattern. Home > Technical analysis > Trend continuation patterns > Flag. Flag figure. Shaped like a flagpole with a pennant, this formation is characterized by an upward movement with a large slope followed by a period of consolidation. TradingView comes with a very handy tool called “Measure” which will allow you to quickly measure how big the Flag pole was: Alternatively, if you’re an MT4 trader, if you don’t want to count on hand, you can simply use the Fibonacci indicator and set your target at the % Fibonacci ratio.