Flag patterns are patterns on price charts that many crypto traders use. Its function is to see the trend of the crypto market.
As for the future, crypto traders can determine the right strategy to generate more significant profits by spotting this trend early.
Well, to find out how to use this pattern in trading, see the full review below.
What is a Flag Pattern?
A flag pattern on a price chart is used to identify a possible continuation of a previous market trend.
The characteristic of this pattern is a sharp reverse trend that is opposite to the previously analyzed price trend within a specific timeframe.
The origin of this term is due to price patterns that are present, like flags. The flag section shows a strong price reversal trend, while the pole leads to a short-term trend of price movements.
Main Components of Flag Pattern
Typically, traders can identify this pattern from 5 stored components, namely:
- Flagpole (flagpole): the previous trend in progress
- Flag up/down: a period of consolidation or accumulation, the trend is relatively flat
- Retracement: price reversal point
- A breakout occurred: a significant change in the trend chart compared to period 2
- The price target that moves according to the trend flagpole: confirms the price movement in the same direction as the breakout condition
Flag Pattern Characteristics
Three characteristics give rise to a pattern different from similar patterns, namely the rectangular pattern or the pennant pattern. Here are some of its features:
- One-way: movement in one direction or trend that creates the beginning of this flag pattern
- Counterclockwise: the movement against the direction of the previous campaign, which is usually a normalization of the trend so that prices are more stable
- Reverse or reversal: movement out of the direction of the previous reversal and continuing the initial price movement
Types of Flag Patterns
Bullish Flag Pattern
This is a pattern that indicates an upward trend in prices. This one pattern illustrates that more buying pressure is moving the price up and down and suggests that the momentum will continue in an uptrend.
This flag can be a horizontal rectangle. However, it is often also downward sloping from the prevailing trend. The other variant is a bullish pennant, with consolidation as a symmetrical triangle.
Bearish Flag Pattern
The following pattern indicates a downward trend in prices in the market. When the price is on a downtrend, this pattern slowly consolidates higher after an aggressive downtrend.
There is more pressure to move the price downwards, suggesting that the momentum will continue in a downtrend.
How to Use Flag Patterns in Trading
First, traders can take steps to open positions after seeing a breakdown or breakout point. The aim is to avoid possible false patterns/only temporary signals on the charts of price movements in the market.
Typically, traders will use the downward trend line as a benchmark. In this case, the stop loss point will be set several levels below the lowest price of the trend line on the price chart in the market.
The best way traders can estimate profits when trading crypto is to calculate the distance between the bottom and the top of the flag pole. Thus a review of the flag pattern is essential to know. Check out articles about crypto assets, blockchain, and others only at Indodax Academy.