Hi all, Hoping someone can help me out, as Im having a problem coming up with a technical solution to trading flags. I am able to identify flag pole and the flag beginning to form, however Im trying to find a technical indicator I can use to help me confirm when the "break" of the flag has been achieved. I know the standard thought is to draw lines on SR but I find them to be arbitrary (difficult to determine). Is there any other way to determine when to jump out of the flag? Stochrsi? MA ? Any help would be really appreciated. (FYI this is for intraday charts small timeframe)
You mentioned that S/R lines seem arbitrary. That should not be the case. Can you tell us how you draw your lines and on what time frames?
Well I never know whether to use 3 or 4 bars etc. After the pole is identified, I draw a line from the low of pole to the low of the next candlestick and then wait for the break of the trend line. However Im not sure how many bars I would need to wait for ? Is there no technical indicator that can help me identify once the momentum is turning in order to go short/long?
This is surely not an indicator problem. Future price behaviour is only going to be indicated by the just-completed behaviour of price itself. So, in a bull flag, upward resumption of price movement is only confirmed by price movement upwards breaking out of the upper flag boundary. Of course, an aggressive trader might take a long position within the flag, a more conservative approach would be to await confirmation via one or more bar closes above the upper flag boundary. An indicator won't show a more dependable sign that probability of price rise is occurring than, say, a hammer closing near or above the upper flag boundary. Its not a s/r issue either surely. Unless you count the flag upper boundary as resistance, which its a type of?
Well, I see where your coming from, your suggesting to buy the break of the high/low of the poll for confirmation? How about in situations where its more of a pennant? The issue with buying the high of the pole, is in essence your buying the breakout portion (i.e the high) which I believe to be more risky. Is there any indication to buy while its within the flag?
I really think you probably shouldn't be trying to find an indicator to "confirm" that. I don't doubt that you'd be able to find one that filters the entries, thus reducing your trading-frequency and even increasing your win-rate, but I'd be surprised if it increased your overall profitability. I think that in general there's a lot of mistaken and misguided reasoning about (especially on websites, on videos and in forums) about indicators "confirming" either price action or other indicators. More specifically, I think a lot of people assume or imagine that if they can "add an indicator" to "confirm" something they're already looking at, and it reduces their entries and increases their win-rate, that's necessarily going to be an improvement to what they're doing. And that simply isn't so. Much more often it's a time-consuming distraction and misleads people into concentrating on their exact entry parameters rather than on their risk-management parameters - which is certainly a sub-optimal approach. "Difficult to determine" - yes. "Arbitrary" - no. It's a skill-set you have to develop gradually, through practice and experience (just like any other). The attraction of "trying to do it by indicator 'confirmation' " is understandable, because that looks as if it can substitute "copying something" for part of the educational and practical learning-curve: i.e. substitute something easier for something more difficult ... but it doesn't work out that way, in the long run. This ("looking for easy things" or "looking for shortcuts") is all part of the reason why the overall, long-term success-rates in trading are so low. Just my perspective. And welcome to ET!
The problem and issue with all trading signals and technical analysis and flags, in my opinion, kind of assumes ...a bunch of dice are thrown into a cup and mixed around...then spit out. The market is not necessarily like that; the market is not just a bunch of dice mixed around in a cup...and thrown out on a table completely randomly. You are trying to find patterns in the dice results, and needless to say...that's kind of utterly ridiculous. It's important and vital you understand and structure your trading game around the variables and dynamics that are somewhat controllable and predictable and manageable and idealism mixed with realism. Be a rope, a metal chain, a rubber band, and dental floss...all intertwined in your trading views and approach. 2018 ET,
Using an indicator for filtering entries can be tested as to both effectiveness as a filter and it's use as net effect on profitability.
I agree (of course). But much more usually, when aspiring traders try to use an additional indicator to "confirm" something, they're using it as a filter to reduce their entries hoping that a higher win-rate (which is almost always how they assess whether or not it's helping!) will make for a more profitable system, and of course it usually doesn't (because they're measuring the wrong parameter and making their inevitable adjustments based on what they measure). Their perspective on this subject typically - albeit not always - arises from a confusion (through no fault of their own at all), on some level, between "entry methods" and "trading systems". The problem, in the context of this thread, is that to be able to identify confidently the times that doing that actually does increase profitability (even assuming sufficient understanding of indicator-displays as to be able to find the right one!), requires a skill-set not normally available to the people who want to try to "confirm something with an indicator" as a short-cut. In my experience.
No, not the high of the pole, the upper boundary of the flag - this will often be lower than the high of the pole. Same goes for a pennant. Have a look at ThePatternsite.com for a summary of these patterns and trading them. If you're aggressive, you wouldn't wait for the break-out through the top of the flag, you could buy or start scaling in while price is still in the flag. This is early and high risk as maybe price won't break out at all. But if it does, you'll have entered at a lower price than the break-out level. You might use a pattern like a hammer forming within the flag to give you an extra level of confidence.