The Flag Pattern – A Trend Continuation Strategy

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In my opinion, flag breakouts are one of, if not the best Forex trading strategy for trending markets.

Because of the simple nature – flag breakouts are another overlooked gem, usually because Forex traders are always chasing the more complicated methodologies!

Like always, flag breaks work well on higher time frames – but I’ve even seen them work well on charts like 1 hour time frame!

Here is my ‘to the point’ breakdown of what flag patterns are, and how I trade them:

A trending structure must be in place.
A counter sloped, trend line develops against the existing dominant trend (the flag line)
The flag line breaks in the direction of the trend
Trade the ‘breakout candle’
Let’s look at an example.

Above: This is my text-book scenario for a bullish flag breakout. A strong trend in place, then shorter frequency lower highs develop against the trend – creating a counter-trend, trend-line.

We’re now waiting for the flag line to break, which signals trend continuation.
![bull-flag-trigger-with-breakout-candle.png]

Above: A breakout signal! A bullish candle closes above the flag structure. We’re looking for a convincing close here, not a candle with a large upper wick.

Once we have the breakout candle, that’s our cue to get long. There are a few different entry, stop loss, and money management combination you can apply here.

I can’t cover them all here, I’ve dedicated a few modules to these subjects in our War Room Forex course.

The basic way is to buy/sell the breakout candle event (after it closes), and place a stop loss below the breakout candle.

If the breakout candle is really large, then other strategies need to be deployed to tighten the stop.

Above: The follow through move after a breakout candle busted the flag structure.

Hopefully you can see the value in this as a trend continuation strategy.

When the market is trending, these flags are actually forming all the time, right under your nose. If you haven’t been looking for them, then you’ve probably been overlooking many opportunities.

If you’re into the lower time frames (like 1 hour), open up your charts and check out what you’ve been missing…

Above: Even on a 1 hour chart, flag structures are actually worth looking out for.

You can see above during a strong trend, even the 1 hour chart produced the goods. The 1 hour chart is normally a difficult chart to apply swing trading strategies to, but flag breaks within trends just work so nicely.

bove: The power of catching flag breakouts within a trending environment. They key is to make sure the broader market is trending before you consider looking for flag trade opportunities.

You do see flags form within consolidation or in ranging cycles, but they just don’t offer the reliability, or reward potential. That’s why I only use them as a trend continuation trading strategy.

Sources: https://www.theforexguy.com/forex-trading-strategies