Flag and Pennant Patterns Indicator. Flag and Pennant Patterns for MetaTrader 4. If this indicator is broken, please contact us and we will fix it in a flash.
Table of contents
- How to identify bullish pennants
- Pennant Patterns: Trading Bearish & Bullish Pennants
- How to Trade Bearish and the Bullish Flag Patterns Like a Pro
These EMAs are a pair of moving averages that work well as a support or resistance area. On a trending market environment, these are areas that we could expect price to retrace to and then bounce back.
Given this characteristic of these 2 EMAs, we could use them as a dynamic support and resistance where we could expect retracements and contractions to occur during a trending market environment. This strategy is aimed at improving our skills in identifying flag and pennant patterns, which we often miss on a naked chart.
By adding the EMAs, we now have an area where we could anticipate these flags and pennants to take shape.
How to identify bullish pennants
If we spot one, then all we have to do is wait for the breakout, then enter the trade. We will also be adding the EMA as a filter to identify the main long-term trend direction. By trading according to the direction of the main trend, we improve our chances knowing that we have lesser headwinds in front of us. This is a working strategy. What you could do with this strategy is to cycle through all the currency pairs that you trade.
I would suggest that you look at everything except the exotics. These patterns do work on the exotics, but because some currencies are manipulated by the central banks, the pattern could be voided.
Pennant Patterns: Trading Bearish & Bullish Pennants
As you look at all the pairs that you are trading, cycle through the timeframes until you find a viable pattern. Then, create a shortlist or watchlist of the currency pairs and timeframes where you found a pattern, then keep a close watch on them until the breakout occurs.
One thing to consider though when taking a trade is the reward-risk ratio. There will be setups that will have low reward-risk ratios if you are targeting the highs or lows of the pole.
How to Trade Bearish and the Bullish Flag Patterns Like a Pro
Some traders would rather aim for the same length as the pole. You could do this if you feel a bit aggressive, although as a warning, the lows or highs of the pole are already in itself a horizontal support or resistance. Other traders on the other hand opt not to take trades if the reward-risk ratios are low based on the target take profits.
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Some traders would opt to take trades above 1. The latter is quite difficult to accomplish but could be done if you would go down a timeframe lower for a more surgical yet riskier entry. This strategy is one of those strategies that would work out of the box but requires a lot of practice and screen time. This is because you would have to learn to identify the patterns, but not only that, you would also have to identify the right supports and resistances and the right breakout candles.
These moves usually occur on heavy volume and can contain gaps. Flag: A flag is a small rectangle pattern that slopes against the previous trend. If the previous move was up, then the flag would slope down. If the move was down, then the flag would slope up.
Because flags are usually too short in duration to actually have reaction highs and reaction lows , the price action just needs to be contained within two parallel trend lines. Pennant: A pennant is a small symmetrical triangle that begins wide and converges as the pattern matures like a cone.
The slope is usually neutral. Sometimes there will not be specific reaction highs and lows from which to draw the trend lines and the price action should just be contained within the converging trend lines. Duration: Flags and pennants are short-term patterns that can last from 1 to 12 weeks. There is some debate on the timeframe and some consider 8 weeks to be pushing the limits for a reliable pattern.
Ideally, these patterns will form between 1 and 4 weeks. Once a flag becomes more than 12 weeks old, it would be classified as a rectangle. A pennant more than 12 weeks old would turn into a symmetrical triangle. The reliability of patterns that fall between 8 and 12 weeks is debatable.
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