I'm still trying to figure out whether we call this a flag pattern or not really makes a difference or is just a matter of semantics - whether its called a flag or just a strong trend, followed by consolidation/mild pullback, followed by resumption of the strong trend, does it matter?
People are looking for the wrong, past, fixed things when they trade. -- To win in this game, you need to structure your end game and time frame chart with reasonable, logical...yet malleable expectations , People wonder why this game is so hard...yet, they approach it with a somewhat naive, happy-go-lucky gambley personality, And for some divine, magical reason...they expect to come out fruitfully profitable in the end. My words are incredibly profound, and golden, if you truly know how to digest and apply them well. You need to learn how to mix and dance and jive theoretical knowledge, with real-world knowledge and applicability.
One of my many pullback variations I swing trade on the daily time frame. Key to a good setup is a good thrust up with volatility contraction at the new swing highs. I usually enter at the 4th/5th bar or consolidation. Stop is usually wider then other pullbacks as when volatility contracts, it tends to explode when it lets go and can quickly push through a stop order. First target is equal distance from stop and that’s when the stop gets ratcheted tightly. When prices go parabolic, they can reverse fast and hard.
When trading one must be flexible and yet unbending....like a lone Yoda on a barren planet with winds blowing the volcanic ash of stock opportunities... ever emanating from the seismic markets from which the islands realize compounded exponential growth via options made of liquid lava. Trading is part art part science. High 5 ET extraterrestrials. MEGA 2018. ___________ (How'd I do LL?) Would Mr. Miyagi be proud?
If you had a tight formation of Head and Shoulders at the top of a channel(flags are channels) , this is considered to be tight if the difference between head and shoulders are say 9 bars, that is fairly wider channel but ok since it is H&S. But if you having speed of price ripping on up, and you clearly can see 2 pivot lows and 1/2 confirmed pivot high, most likely it is a channel. The only different between channels and tri-angles are consolidation of the #'s 3 & 4, meaning a tightening and not breaking the pivots at #1 & #2, it is very similar to Bollinger Bands tightening up and usually it only stays tight for so long and BAMM explosive move, but always hard to say for duration. Enclosed chart, clearly shows all are against some trend, buy low and sell high, isn't this what we suppose to do? This isn't rocket science, do few hundred charts manually till you can do it in your dreams. Always liked that movie with John Candy and Steve Martin. Well, this is what it is Flags, H&S, Tri-angles, and you can do with trend as well
He is on my Ignore, so here is what he probably meant: Yesterday there was a rally into the close that eventually made the flag's pole. The flag part today was consolidation but slightly to the downside, thus "countertrend" to yesterday's rally. You can short the upper line, just be aware that eventually it would break out that way, so don't get caught short when that happens... Once recognized you keep going long at the lower line and be ready for the break out what you want to ride for a while...
Let’s say A is the high for the last 50 bars, and B is the low for the last 50 bars. A breakout player will put sell stop below B hoping for a breakout to the downside. But what ends up happening is after the sell stop is hit price starts to revert back up triggering stop loss. Than the next participant puts another sell stop below the 1 st traders sell stop and it keeps repeating.
Bear channels and bull flags are one and the same. That is, they both have the same function. The flag posted by Pek was in the form of a bear channel. But it was a bull flag simply because the previous trend was bullish. Bear channels have about a 70% chance that the successful BO, when it comes, will be to the upside. Since bull flags are the same as bear channels the same percentage applies to bull flags. What about when the BO is south? 30% of the time the BO of a bear channel or bull flag will be south. When that happens look for 2 legs down or a measured move down. So, if they are the same what is the difference? Basically, what looks like a bear channel on say a 5 minute chart is just a flag if you dial to a 30 minute chart. Function is the same on both. The channel is just a “longer” flag. If it is broad bear channel (again same as bull flag) i may very well trade it both ways shorting at, or near the top, and going long at, or near, the bottom of the channel. If it is a tight bear channel then I prefer to only short at, or near, the top and cover at, or near, the bottom, however, since a bear channel is a bull flag i am looking for the BO (70%) to be north. Flip that around. A bull channel is the same as a bear flag in function simply because the previous trend was bearish. The bull channel is just longer than the bear flag. On a higher time frame a bull channel will just be a bear flag. BO’s, when successful are generally south 70% of the time. The 30%, when it is north, then look for two legs. So.....the tactic for me in bull channel (i.e. a bear flag) is to go long at the bottom of the bull channel and short at the top UNTIL THE EXPECTED BO (70%) south succeeds, providing it is abroad enough channel to trade both ways. However, I prefer to go long only, if the channel is tight. The trick to understand trading both directions is that most attempts (75% of the time) BO’s of a channel fail, whether the attempt is at the top, or at the bottom. Sooner or later one BO will succeed and become either the 70% or 30% mentioned above. Think through what I am saying here and look at a few charts comparing channels and flags on different time frames for the same PA period.
Hard stops don't work. Period. They are easily triggered. I don't know how these things happen... but they do... errant candles. And they happen all the time on the high-vis stock-de-jour. You could be long NFLX at $200 and out of nowhere a paint on the tape comes in for $179. Boom... your software enters a market order to sell or a limit order where you programmed it. (Substantially below the day's ATR based on the $200 channel behavior.) If you can't sit there and monitor this stuff with the ability to manually enter mnemonic stops that you have the discipline to stick to.... its better to just buy an ETF in what you think is the hot sector and hope for the best.