Like rectangles, flags are continuous graphic patterns that form after strong movements.
After a big upward or downward movement, buyers or sellers usually pause to catch their breath and then move the currency pair in the same direction and further direction.
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For this reason, the price usually stabilizes and forms a small, symmetrical triangle, called the triangular flag, or flag for short.
How to trade ascending and descending flags?
While the price is still stabilizing, more buyers or sellers usually decide to take a position on a strong move and force the price to leave the flag structure.
Descending flags
A bearish flag is formed during a bearish trend with a steep (almost vertical) slope.
After a sharp drop in price, some sellers close their position while other sellers decide to join the trend and thus stabilize the price for a while.
How to trade ascending and descending flags?
As soon as enough sellers enter the market, the price breaks from the bottom of the flag floor and moves down.
How to trade ascending and descending flags?
As you can see, after a break from the bottom, the price resumed its decline.
To trade this chart pattern, we place a sell order at the bottom of the flag with a loss limit above the flag.
That way, if the failure is fake, we will be out of the deal immediately.
Unlike other graph patterns where the size of the next move is approximately the same as the height of the structure, flags signal much stronger movements.
The height of the previous movement (also called the rig) is usually used to estimate the size of the movement after the failure.
Ascending flag
Rising flags, just as their name suggests, indicate that the cows (uptrend) are about to take over.
This means that the sharp rise in prices resumes after a short period of stabilization, and after buyers have gathered enough energy to raise prices again.
How to trade ascending and descending flags?
In this example, the price had a sharp vertical increase before accumulating energy (breathing). Personally, I can hear the sound of cows being poisoned when they want to attack again!
How to trade ascending and descending flags?
Just as we predicted, the price made another strong uptrend after the break.
To play in this section, we place our purchase order above the flag and our loss limit under the floor to prevent any fraudulent failures.
As we said before, the size of the movement after failure is about the height of the rig (or the size of the previous movement).
It can be seen that the size of the flags may be small but they can signal huge price movements, so do not underestimate them!
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