“Flag” trading strategy
Studying the chart patterns becomes more and more popular among the traders over years due to one simple reason: these patterns give a fairly accurate prediction about where the price will move further. The accuracy of these forecasts is confirmed by the decades of observations and established trading strategies.
Today we will review the strategy of trading on the binary options market, which got its name from the shape and is called “Flag”. It should be noted that this figure is quite often found in the charts, suggesting the presence of a large number of signals on it. Today we will review an intraday trading strategy, as this option is the most profitable. However, do not neglect this approach in long-term trading. Since we now review the pattern for intraday trading, we will analyze five-, fifteen- and thirty-minute timeframes.
The “Flag” chart pattern is very similar to the “Pennant” pattern. Both of them are trend continuation patterns, both appear on the chart after the sharp price movements up or down at a time when the price pulls back slightly from the previously conquered positions. After all, they both have a distinctive feature – the flagpole, i.e. there is a significant movement, after which these chart patterns are formed. This pattern looks like this on the chart of the Meta Trader 4 trading terminal.
As we can see, after making a big leap up, the price stopped and started to move in the opposite direction (going to correction). At the same time, the support and resistance lines have formed, which are almost parallel to each other. This means that the number of buyers in the market fell sharply, some began to take profits, which in turn led to some price pullback. Once the upper boundary of the flag was broken, the trend has continued its ascent.
If we talk about the “Flag” pattern on a downward trend, everything looks exactly the opposite here. The price, falling in a short time for a few dozen points, started consolidating in a narrow range, thus forming the “Flag” pattern body. After consolidation, the price continued its way down. It can be seen like this on the terminal chart:
Points of entry into the option to buy:
If we consider the option to buy with the Call option in intraday trading, we must at first monitor the price movement during the active trading of European and American sessions – when it comes to currency pairs with the euro, the pound, the dollar in the numerators and the major raw materials. If we see a sharp move up, we wait for the appearance of the “Flag” chart pattern. Once we have drawn support and resistance lines, we wait for the pattern to be broken through upwards and then make a Call deal, after the rising candle closed above the resistance line we drew.
Points of entry into the option to sell:
For the deal with the Put option, we need to wait for the formation of the flagpole directed downwards, that is a sharp drop in the price of the asset, after which to draw support and resistance lines. If they are parallel or almost parallel to each other, we got a “Flag” pattern. Then we just need to wait until it is broken downwards (when the candle closes below the support line) and enter the market.
Since the “Flag” chart pattern is very similar in nature to the “Pennant” pattern, it is logical to assume that the kinds of options to work under this strategy are also similar. They are. Besides the classic options, it is recommended to use Range Out and No Touch options in your trading system. They show good results in trading, in the option of setting the “no touch” and “range” levels, which begins with the high or a low of the flagpole. Moreover, the profitability of such options exceeds the profitability of the classic options with a guaranteed profit if you win.
The option expiration time, as in the “Pennant” strategy, should be four timeframes in which it is found, or at the end of the trading session (the schedules of which you can find here). If they are lower timeframes (5-15 minutes), it makes sense to set an expiration time at 20-60 minutes. If the timeframe is longer, the expiration time of the option should be 5pm-9pm-midnight GMT, depending on when the “Flag” pattern was formed and broken through.
After many tests, we were able to determine that the “flag” pattern shows the profitability of around 65% at the moment. The accuracy of its signals is not high, but it can ensure lucrative trading. At the same time, if you observe the rule of making a deal not after the closing of the candle, but after waiting for the closing of the next one, the profitability increases by 69%. But Range Out and No Touch options in the framework of application of this strategy shows the results worthy of respect – 87% and 82%.
Given that the “Flag” pattern occurs often enough on the chart – almost every week, you need to take this into account when managing capital. If you enter the deal with the maximum possible capital, in the case of appearance of other signals under other strategies, you will have to pass them until the option opened under the strategy we review is over. Therefore, we recommend to enter the deal with the risk of a maximum 1-2% of the amount of your deposit.
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