Flags And Pennants

Flag : It is formed within a short channel with parallel lines.

Pennant : It looks more like a symmetrical triangle where the lines converge.

-These are generally continuation patterns.

-Most commonly found in between a trend.

-They are considered to be the easiest & most reliable patterns to trade.

-When preceded by a sharp movement on either sides, the success rate is strong.

The best flag is considered when :

-Faces downward in an uptrend

-Faces upward in a downtrend

-Up to 5 candles during flag formation

-Usually, volume squeeze is seen during the formation of both flag & pennant as compared to volume of pole.

How to calculate Target :

-The length of pole is measured and then added/subtracted from breakout levels.

How to trade the pattern :

-I ideally wait for the pattern to form completely and give a breakout

-The end of flag/pennant is the Stop Loss

Below is 5 mins chart of Nifty Bank Futures :

-Notice the volume squeeze at flag formation

-Subsequent high volumes on pole

An alternative way is to trail the stop loss to ride the trend longer. Refer to the image below :

What can go wrong :

-Failed breakout

-Breakout in the opposite direction

Patterns will not be always correct. Always respect your stop losses to protect your capital.

Happy Trading!