Forex 103 L6 - FXN Trading U s/Forex 103 L6...Forex 103 Lesson 6 Flags and Pennants Patterns Flags...

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Forex 103 Lesson 6

Transcript of Forex 103 L6 - FXN Trading U s/Forex 103 L6...Forex 103 Lesson 6 Flags and Pennants Patterns Flags...

Page 1: Forex 103 L6 - FXN Trading U s/Forex 103 L6...Forex 103 Lesson 6 Flags and Pennants Patterns Flags and pennants chart patterns are primarily known for signaling a continuation of the

Forex 103Lesson 6

Page 2: Forex 103 L6 - FXN Trading U s/Forex 103 L6...Forex 103 Lesson 6 Flags and Pennants Patterns Flags and pennants chart patterns are primarily known for signaling a continuation of the

Flags and Pennants Patterns

Flags and pennants chart patterns are primarily known for signaling a continuation of the previous trend.

The flag or pennant chart pattern is formed right after a bullish or bearish price movement followed by a period of consolidation.

This is where price tends to take a pause before continuing in the original direction of the trend.

Flags and pennants chart patterns are easy to identify and can be found just after an important news release such as the NFP/unemployment

reports or other important economic news release.

Page 3: Forex 103 L6 - FXN Trading U s/Forex 103 L6...Forex 103 Lesson 6 Flags and Pennants Patterns Flags and pennants chart patterns are primarily known for signaling a continuation of the
Page 4: Forex 103 L6 - FXN Trading U s/Forex 103 L6...Forex 103 Lesson 6 Flags and Pennants Patterns Flags and pennants chart patterns are primarily known for signaling a continuation of the

Trading the Flag PatternsThe flag pattern is identified by two main elements.

The flag post, which is basically the strong price action

The flag, which is a period of consolidation

A bullish flag is identified by a downward sloping flag, where as a bearish flag is identified by an upward

sloping flag. The following chart shows the bullish and bearish flag patterns along with how they are

traded.

Page 5: Forex 103 L6 - FXN Trading U s/Forex 103 L6...Forex 103 Lesson 6 Flags and Pennants Patterns Flags and pennants chart patterns are primarily known for signaling a continuation of the

After price starts to consolidate and move gradually lower, look to

buy on the break out of the flag. The price objective is expected to be

the minimum previous distance of the flag post from the break out price level. The chart below shows an example of a bullish flag

trade example.

Page 6: Forex 103 L6 - FXN Trading U s/Forex 103 L6...Forex 103 Lesson 6 Flags and Pennants Patterns Flags and pennants chart patterns are primarily known for signaling a continuation of the

The Chart above shows a bullish flag example. We notice how

the price moved rapidly before entering a period of gradual exhaustion, shown by the number of candles within the flag.

After breaking out of the flag pattern, price rallies to reach

not only the minimum price objective but rallies to make higher highs. The stops for the bullish flag are placed just at the low

prior to the break out from the bullish flag.

A bearish flag is characterized by a sharp drop in price followed a period of gradual price congestion moving higher within a channel. On break out of the bearish flag, price then

travels a minimum distance of the flag post. The example below

illustrates a typical bearish flag pattern.

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Page 8: Forex 103 L6 - FXN Trading U s/Forex 103 L6...Forex 103 Lesson 6 Flags and Pennants Patterns Flags and pennants chart patterns are primarily known for signaling a continuation of the

The next chart below, shows an example of how the

bearish flag is traded.

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An interesting point to bear in mind in the above bearish flag trade example is the retest of the break out level. This retest may or may not happen, but it does remind

traders that trading on a retest of a break out price

level is always a safe option.

However, this is not always as the case as in most

cases with flags, the break it sharp and quick.

In the case of the above bearish flag break out, despite

the rally back to retest the break out level, price did

manage to reach the minimum price objective.

Page 10: Forex 103 L6 - FXN Trading U s/Forex 103 L6...Forex 103 Lesson 6 Flags and Pennants Patterns Flags and pennants chart patterns are primarily known for signaling a continuation of the

Trading the Pennant Patterns

The pennant patterns are similar to flags, with the main difference being

that the patterns are formed as converging trend lines into a triangle. The bullish and bearish pennant chart patterns work on the same principles of the flag patterns. The following chart shows a bearish

pennant pattern.

Page 11: Forex 103 L6 - FXN Trading U s/Forex 103 L6...Forex 103 Lesson 6 Flags and Pennants Patterns Flags and pennants chart patterns are primarily known for signaling a continuation of the

As seen by the above chart, the bearish pennant

pattern is identified by converging trend lines forming a

pennant that is sloping upwards at the bottom end.

The pattern is somewhat similar to a symmetrical

triangle formed within a smaller number of candles, but

preceded by a sharp bearish drop.

Page 12: Forex 103 L6 - FXN Trading U s/Forex 103 L6...Forex 103 Lesson 6 Flags and Pennants Patterns Flags and pennants chart patterns are primarily known for signaling a continuation of the

The chart below illustrates a bearish pennant example. In this example, we also

get to see a fake out that occurred out of the bearish pennant/symmetrical

triangle.

When taken in view of the larger chart pattern, the bearish pennant, the fake

out could have been easily avoided. Price eventually manages to break lower out

of the pennant pattern eventually retesting the break out before dropping to reach the price objective.

Page 13: Forex 103 L6 - FXN Trading U s/Forex 103 L6...Forex 103 Lesson 6 Flags and Pennants Patterns Flags and pennants chart patterns are primarily known for signaling a continuation of the

The bullish pennant pattern is the opposite of the bearish pennant pattern and almost similar to a bullish flag pattern, with the exception

that the pennant is formed by converging trend lines forming a symmetrical triangle. The chart below, shows a bullish pennant

example and how it can be traded.

Page 14: Forex 103 L6 - FXN Trading U s/Forex 103 L6...Forex 103 Lesson 6 Flags and Pennants Patterns Flags and pennants chart patterns are primarily known for signaling a continuation of the

The Chart below represents a trade example of a bullish pennant pattern. Here we can see after a rapid rally, prices started to

consolidate within a tight range forming a pennant. Upon break out

from this pennant, price then subsequently rallied to reach the

projected target.

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The flags and pennant patterns can be a good way to trade chart patterns. Because they are continuation

patterns, the chances of them failing a very low and

therefore can offer a safer way to trade chart

patterns, especially for those who are just getting

started with this approach to trading.