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22 Feb 2015
Chart Patterns Can Be Fun To Learn

One of many first experiences most traders get though when beginning technical analysis study is chart pattern identification. One of the primary patterns most traders learn is the flag pattern. This can be a straightforward continuation pattern that forms following a strong trending market. The pattern can be a congestion pattern that is nearly the same as triangle and wedge patterns. The key difference between these patterns combined with the flag pattern is slope with the lower support as well as the top resistance area. There isn't any convergence between the two trend lines and they both run parallel to one another unlike the triangle pattern which regularly gets tighter as both trend lines converge for the other as the triangle pattern on. Gap Chart Pattern Analysis

You can observe in this example the two bull flag and the bear flag. Both have upper support and in addition resistance areas that are completely parallel to one another. The flag takes a bit less time that you should develop than the triangle pattern as the level of volatility doesn't decrease in a flag formation up to it does in the triangle development.

Within this example you can observe the flag formation clearly. Notice the way the two upper as well as the lower trend lines converge on the other as the flag formation continues developing. The upside from the triangle formation is less risk because of extended tightening of the trading range. The negative effects of the flag will be the extended time it takes with the triangle formation to completely variety. The flag formation typically forms in less than a month but has more volatility and thus more risk related to this.

The flag pattern can be a classic continuation pattern that forms following a market has begun trending in one particular direction. Don't try to find flags soon after an industry reversal occurred, a well balanced trend should be underway before a flag formation happens. Remember that a continuation pattern is often a pause in the existing trend not a change on the way to the popularity. Notice in this specific example the way the stocks key trend is clearly identified prior to formation of the flag begins.

One the flag formation completes the stock should exhibit powerful volatility and resume movement on the way to the trend. Do not take signals counter for the trend in these scenarios regardless how appealing they look aesthetically. The flag pattern is any pure continuation pattern; therefore all signals have to be taken on the way to the key trend.

Here is another illustration of Google forming a bullish flag pattern after a strong upwards move that lasted one straight month. The flag pattern must take about one third or one quarter of that time period to form compared to your trend preceding the organization. One of many benefits of trading flag formations has to wait less time than formations like triangles and wedge patterns. Gap Chart Pattern Analysis

While stocks breakout from flag patterns, they need to demonstrate increase in volatility and momentum back in order to the trend. Sometimes you'll have other events for example information or other important announcements that coincide with all the breakout of the flag pattern. The stock should begin moving much like the actual way it moved prior to entering the flag pattern to start with. You want to money flowing to the stock with hardly any movement going from the main trend.

The bearish flag pattern is likely opposite of the bullish the flag pattern. The trend has to move down for a number of time prior to the formation from the flag pattern. After the flag begins in order to develop you should see a substantial loss of volatility and momentum as compared to the trend prior to the development. Notice how Intel drops a quarter of the stock's price prior to entering a flag pattern in this particular example.

The bearish flag formation tends to form a bit faster when compared to bullish flag pattern. Most chart patterns react this way so this is not a big surprise. You should go to the good breakdown following the completion of the flag pattern in the two caser. Gaps towards the downside while increasing in volume aren't unusual occurrences with this particular chart pattern.

When trading either the bullish the flag or the bearish flag you should never forget that this formation is really a brief pause in the present trend and not an enhancement reversal. You should also keep in mind that flags tend to develop faster than triangles and wedges since flags don't develop price consolidations or narrowing of the trading range. This will help some time but will improve the risk of your position as a result of more volatility when you enter the trade. It is a tradeoff between a shorter period and much more risk, just like most issues in life.


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