How to Trade Flags

This Weeks Watch list is packed with great setups. So much so that I am going to skip the review video and go over how I trade Flags in the HPS system. This week's video has 3 Best Bets that all come from the same sector..Can you say sector rotation... Well would like to see that this next week and that could also be a safety sector that might find some interest if the market pulls back some soon. But I am not calling for a top and will just see how things look early Monday morning. Markets still will be focused on headline risk. I like the gradual scale in on the SPXU but not very small increments.

This next part is a small piece of the HPS methodology section: How I trade Flags.

Flags and Pennants: Whats great about flags? Well for one thing they are everywhere and on every time frame. I actually have a technique on the 1 minute chart that is up close to 85% success rate when it appears. This you will find on the futures HPS section. Flags also usually consist of multiple indicators that I use in the HPS. It is a great pattern but just like everything else you need to have converging indicators line up at the same time.


Flags and Pennants are short-term continuation patterns that mark a small consolidation before the previous move resumes. These patterns are usually preceded by a sharp advance or decline with heavy volume and mark a mid-point of the move.

My # 1 Setup when trading a flag is that I want the stochastics to be oversold and at that time the price to be above the 20 ema or 50 ema. This is a guide for me and not a hard set rule. I mostly look for this set up on the daily time frame. In some cases the price will chop around the 20-50 ema so you don’t want to be so exact that you miss some great opportunities. Lots of times you will see the price drop below the 20-50 ema just to see it close back above it by the end of the day.

The keys are:

1. Trend is intact, we are pulling back but holding above the previous pivot low.

2. Stochastics making a fast rotation back to oversold levels <20 as the price makes a very organized pullback but hold above the 20-50ema

3. Flags like any pattern have a unique look to them. Basically they are mini channels that should be traded like any other channel (Channel Lesson) “Make sure it looks like a flag”

This combination has had high probability of success. In My experience it works over 70% of the time. That would increase depending on other convergences at that time. (Trend Lines, Reversal candles,ect)

Flags are continuation patterns and usually show up multiple times in a row, but it is important to identify them early in the trend so you can profit form them.

Here are some examples of my Trade-able Flag Setup

Lets start with the Daily Time frame:

$DNKN


Now lets break down how to trade the flag

Breaking down the daily time frame into a 60 min time frame shows you a great entry technique called the “Daily 60 Stochastic Combo” which is a multiple time frame trigger when both the 60min stochastics oscillator get oversold at the same time the daily stochastics are oversold.

Because the daily is a slow moving time frame the combo doesn’t happen every day but when it does it should be considered.

The Next chart is the same flags that we had on the daily now broken down to the 60 min time frame. You can see the channel much more in detail and the much quicker rotation of the stochastics.

$DNKN


This above technique as with any setup is dependent on market conditions. Flags are great in a trending market but trends can be defined and spotted in any time frame. You can have a trend develop on the 5 min time frame or a 1 min time frame. So understand your time frame and what to expect from it. The 60min daily combination is great for swing trades but also because the 60min is a trigger could be a great scalp also.

You can trade the 60 min flag by itself you don’t have to always wait for the combo to setup. I will go over the 60-15-5 combo in the next section.

$DNKN


Have a great weekend Everyone

DayTraderRockStar

 

Great thread DayTraderRockStar, a flag formation is one of the most profitable and powerful (continuation) chart patterns I know!

The trick of course is to know where to draw those two lines with 100% objectivity and in a non-discretionary way ...

(Be careful though, a seemingly "oversold" condition, even if it happens on 2 time frames at the same time, is not a guarantee that the price will now go up, as your strategy implies)

 

Really interestingly, thanks for sharing...

Seems quite powerfull, have you tried to use a stockscreener to collect a list off papers that have the right "flag setup" ?

 

Examining the past can be deceiving.

If you examine a strong uptrend, expect for classic bull signals to had worked

 

xelite777: Reply to your message.

Every situation comes with the danger of the markets moving outside the norms.  So, nothing is guaranteed. These are my studies organized in a way to show areas or interest, or what I like to call High Probability Setups (HPS), and is not a recommendation to buy or sell.  Disclaimer I’ve been a full time trader from 1996 to 2014.

 

Great Flags and HPS(High Probability Setup) for Thursday and Friday

Sitting down doing some research tonight knowing i was going to find some gems for tomorrow. Well I will not disappoint you and instead of a video I just want to post the charts here and add a few lines to describe each setup and what looks the best.

The truth is I only got through maybe a 1/4 of my watch list before realizing there are some really great setups and so much as to make me consider the possibility that sooner and not later we will be seeing the markets move higher and making new highs before getting any real pullback.(SPX).

Lets just get started so I can get back to some mindless reality show.

I will save the best bet for tomorrow and Friday for the end of the list. Almost all are equally as great, I will try to weigh them out a little more down below

.

ETR this is a on the HPS watchlist this week and performing perfectly, check watchlist for targets and alerts.



DUK talked so much about these on watch list and focus all day. Working perfectly and looking for follow through tomorrow. Also could be the beginning of a bigger trend higher.





Wide Flag this is probably #2 Best Bet. "Wide Flag" is something that has discernible pivot areas. I find this easier to time and more reliable. Great Stock Nice Flag

 

Cont'd from Great Flags and HPS for Thursday and Friday




Now why aren't you in this? Best Bet #1



DLB Got out of DLB way to early still love it as a play for the year. I might get back in, Great outside day candle should propel this past 46.

There are others that are popping up I want to do a full scan tomorrow morning before the open so we get a lot more setups before the open. Plan on that to happen 8:45am et. Until them Goodnight

DTRS

 

$D hits it's price target from this weeks HPS Watchlist. Take profits if you got 'em

 

Signed up because I saw this thread.

I trade flags on stocks for the most part. Can clearly define risk and reward, if pullback is far enough from pivot. A really clean method of trading.

Nice thread.