What is the flag model? 3 ways to trade with the flag pattern

What is the flag model?

The flag pattern is price modelContinuation of the current trend, which usually occurs after a sharp period of volatility, indicates a pause before the price resumes the main trend.

The flag pattern consists of two parts: the flagpole indicates a sharp rise or fall, and the flag is formed from price fluctuations in a narrow margin, which often tilts against the main trend.

Meaning of flag pattern

Pattern of the flag in Technical analysisis a signal indicating the continuation of the current trend after a period of short-term pause. This pattern usually appears after a sharp fluctuation (It's called a flag pole.), which represents the rapid and definite movement of prices in one direction.

The next stage,It's called the flag., is the period during which the price fluctuates in a narrower range, representing a short-term correction or accumulation before resuming the initial trend.

The flag pattern carries important significance in confirming the strength of the main trend. When the price breaks out of the flag range, this is a signal that the market will continue to move in the same direction as the previous trend. The height of the flagpole can be used to estimate a new price target after the trend resumes.

In addition, the flag pattern also reflects market sentiment, when a short correction is seen as an opportunity to prepare for the next breakout, often accompanied by increased trading volume.

However, the meaning of the flag pattern is reliable only when appearing in a strong trend, and should be combined with other indicators to determine the entry point to the order or predict the price target more accurately.

How to recognize and draw a flag model

First, let's define the flag columnby finding price segments that rise or fall sharply in a clear trend. Mark the beginning of a sharp movement and extend the trend line in the direction of price movement until the price begins to slow down or correct. This is the flagpole section, reflecting the main dynamics of the trend.

Next, determine the flagby observing the accumulation or adjustment phase immediately after the flagpole. The flag usually appears as a parallel price channel or a small triangle and tends to tilt in the opposite direction to the flagpole. Draw two border lines to limit the range of price fluctuations during this period, ensuring the borders accurately represent support and resistance levels.

Then, determine the continuing trend by drawing a continuous line from the breakout point when the price begins to break out of the flag in the direction of the main trend. This line can also be stretched to the same height as the original flagpole to estimate the price target.

Important notes:

• Trading volume: Volume usually rises sharply during the flagpole formation phase and when the price breaks out of the flag. During the accumulation period, the volume of transactions usually decreases.
• Flag Formation Time:The flag stage should not last too long compared to the flagpole. If the accumulation time is too long, the model may lose its validity.
• Flag Shape:The flag should have a clear upper and lower border, tilted in the opposite direction to the main trend.
• Breakpoint confirmation:The price needs to cross the upper border (in the uptrend) or the lower border (in the downtrend) to confirm the continuation of the trend.

Common Flag Patterns in Trading

In technical analysis, the flag pattern represents a temporary correction in a strong trend before the price resumes in its original direction. This model is divided into two main categories, which include the bullish flag model and the bearish flag model.

Bullish Flag Pattern

Characteristics:

• Appears in a sharp upward trend.
• The flagpole is a rapid and strong rally in prices.
• The flag has the shape of a parallel or triangular price channel, tilted downwards, reflecting a slight correction of the price after a sharp rise.
• Trading volume gradually decreases during flag formation, but rises sharply when price breaks out of the flag range.

Meaning:

• The pattern represents an attempt to push the price down by the sellers while the buyers remain proactive and continue the uptrend.
• After the correction period, when the price breaks out of the flag range, the buying side prevails and the uptrend will continue strongly.
• This is a signal that the market is pausing to accumulate before resuming gains, and traders can enter orders when the price breaks the upper border of the flag.

Discount Flag Models

Characteristics:

• Appears in a sharp downtrend.
• The flagpole is a quick and sharp drop in prices.
• The flag has the shape of a parallel or triangular price channel, tilted upwards, reflecting the slight recovery of the price after a sharp fall.
• Trading volume gradually decreases during flag formation, but rises sharply when price breaks out of the flag range.

Meaning:

• The pattern represents an attempt to recover prices by the buying side while the sell side continues to maintain a downtrend.
• When the price breaks out of the range of the flag in the downward direction, the sell side prevails and the downtrend will continue.
• This is a signal that the market is only in a pause or correction phase, and when it breaks out, the downtrend will continue strongly. Traders can enter orders when the price breaks the lower border of the flag.

3 steps of trading with a flag pattern

With a simple but recognizable structure, the flag pattern helps traders make optimal use of key trend opportunities. The following are 3 steps of trading with the flag pattern:

Step 1: Identify the trend: The flag pattern is effective only when the previous trend is clear and strong.

Step 2: Draw the flag model: Define the flag section, which is the price correction zone after the main trend. The flag is usually in a parallel channel, so joining the vertices together forms resistance lines, connecting the bottoms together forming a support line.

Step 3: Determine the order entry point, the stop loss point, and the break-profit point:

Rising Flag Pattern - Buy Priority

• Entry point: Buy as soon as the price breaks the resistance line or wait for the price to retest the broken resistance line, then buy at the retest point.
• Stop Loss: Set at the lowest bottom of the flag.
• Take profit: The price target is equal to the height of the flag column from the break point.

Declining Flag Pattern - Sell Priority

• Entry point: Sell as soon as the price breaks the support line of the flag or wait for the price to retest the broken support line, then sell at the retest point.
• Stop Loss: Set on the highest peak of the flag.
• Take profit: The price target is equal to the height of the flag column from the break point.

Example of entering a command with a flag pattern

The following is a specific example of how to place a BNB/USDT trade order when a bearish flag pattern appears on the chart.

• Place a Sell order at 575.05 USDT, as soon as the candle breaks the flag pattern.
• Set Stop Loss at the highest peak, at 603.43 USDT.
• Set Take Profit equal to the height of the flagpole, at a price of 444.76 USDT.

Note when trading according to the flag pattern

Trading on a flag pattern is an effective strategy, but in order to increase the success rate and reduce risk, you need to take into account the following factors:

• The previous trend must be clear and strong: The flag pattern is a continuous pattern, so it takes a major upward or downward trend before the formation of the flag. Avoid using the model when the market is in a sideway phase, as the signal will be unreliable.
• Shape of Flag Pattern:The flag should have a slope opposite to the main trend and move in a parallel channel. The amplitude of the oscillation of the flag should not be too large, ideally about 1/3 of the height of the flagpole to increase accuracy.
• Model Forming Time:Flag modeling should be completed in a reasonable amount of time. If the flag lasts too long, the dynamics of the main trend may be weakened, which reduces the reliability of the model.

• Trading volume:During the flag formation phase, the trading volume usually decreases gradually. When the price breaks the resistance line (with the bullish flag) or the support (with the bearish flag), the trading volume needs to rise sharply to confirm the break.
• Choose the right timeframe:Flag patterns can appear in any timeframe, from M5 to D1. However, large time frames (H1, H4, D1) usually give clearer and more reliable signals than small time frames.
• Additional combinations of technical indicators: To increase the success rate, it is recommended to combine signals from the flag pattern with other indicators such as RSI, MACD, or moving averages. Additional signals will help confirm the trend and minimize risks when trading.