Pattern Trade - Flag

[Shaker]

Hi attached is a trade on a flag setup.



Basically, this is my first flag pattern trade.
Any thoughts on my flag selection?
After initial spikes volume has been dropping but not significantly

Regards
Shaker

 

[CanOz]

It looks ok Shaker, pretty aggressive stop though...I would have thought the lowest low...

check out flags here...

 

[skyQuake]

The low on the 22nd was the high of the prev range (15th Jul) which is good.
Why @ 84? Why not a buy stop @ 80.5 which is 0.5c above yesterday's high. Might also want to put stop 0.5c below the most recent low @ 73.5 instead of 74. This would yield a slightly better risk/reward
Sector has been doing fantastic recently so there's a lot of momentum.

 

[Country Lad]

Flags come in all sizes and shapes and there is nothing wrong with the pattern.

What you need to keep in mind that until there is a confirmed breakout, there is over 30% failure rate. For example, this is a good looking flag in an uptrend:



However, without waiting for the breakout, this was the result.



Consequently, your entry at 84 would be with a risk of over 30% that it will fail. I trade flags often, and in this case would not enter till the break at 92. From that point there is a likelihood of a rise of over 30%.

Keep in mind with trading any pattern the risk of it going bad is very high without waiting for a break from the pattern. It is difficult to anticipate what a pattern will do any time, but without a break you can have no idea at all.

Hope that helps.

Cheers
Country Lad

 

[Shaker]

HI again

Thanks for the replies.

Yeah I have modified entries after the post with entry at 0.81 and a stop at .735 which is 5% off recent low close.

Bulkowski's Analysis as I read it

Flagpole 0.325c
Probability of success on b/o 64%
Profit Target is 21c.

Oh and this is a paper trade unfortunately as cash in market already.
So if no breakout early next week I will re evaluate when cash available.

Again thanks for the input

Shaker

 

[Shaker]

Flags come in all sizes and shapes and there is nothing wrong with the pattern.

What you need to keep in mind that until there is a confirmed breakout, there is over 30% failure rate. For example, this is a good looking flag in an uptrend:

View attachment 54006

However, without waiting for the breakout, this was the result.

View attachment 54007

Consequently, your entry at 84 would be with a risk of over 30% that it will fail. I trade flags often, and in this case would not enter till the break at 92. From that point there is a likelihood of a rise of over 30%.

Keep in mind with trading any pattern the risk of it going bad is very high without waiting for a break from the pattern. It is difficult to anticipate what a pattern will do any time, but without a break you can have no idea at all.

Hope that helps.

Cheers
Country Lad

Thanks CL

With your comment it does seem risky. I will find out as paper trading. As it is a speculative stock it is risky anyway.

So, this stock formed a triangle base breakout with target of 25c completed at 83c. is the following bar close to an exhaustion bar? And if so is this how flags are usually made?


I paper traded bloody MNC Sym triangle breakout. Now no clear trend but certainly bang for buck there.

Shaker

 

[Country Lad]

So, this stock formed a triangle base breakout with target of 25c completed at 83c. is the following bar close to an exhaustion bar? And if so is this how flags are usually made?

Sorry, you lost me there. Flags are made simply with lower highs and lower lows in a particular pattern.

I am not saying that this isn't one that you may legitimately trade, just that like any other pattern the risk is greatly reduced if you wait for a breakout.

Another similar one is




and there are quite a few around, some of them simply following the up & down of the overall market, which has a similar pattern.




Cheers
Country Lad

 

[Shaker]

Sorry CL I was referring to the base of the chart I posted.

Ta for your info though

Shaker

 

[tech/a]

I think your missing some important ingredients in identifying good or better Flag prospects.
(1) Background
(2) Volume characteristics.
(3) Range and gaps (IE effort within the flag from the pole to internally)
(4) Age of pattern ( IE how old the flag itself is.3-6 bars which are tight - best )
(5) Angle of flag.
(6) Depth of flag relative to the pole.

 

[stickman]

hi have a look at ipp almost perfect set up

cheers

 

[Gringotts Bank]

Flag/pennant is [obviously] a strong and uninterrupted run up followed by a period of congestion over a narrow range. The strong and uninterrupted run up is the market saying "something of interest here!". In most cases, "something of interest here!" will be followed by a sell off, where punters take profits, resulting in a reversion to the mean and a busting of the potential flag pattern. If reversion to the mean doesn't happen, that means the buyers are happy holding, creating a lack of supply and the probability of another surge at some point soon. If supply is low and the price isn't moving much, then volume has to drop off. Markets tend to swing between periods of high and low volatility. Once the top of the flag pole has been created, the volatility (and volume) should drop away. When the volatility has contracted considerably, that imo is a better entry point. It anticipates a swing back to higher volatility which is likely to be in the upwards direction.

 

[Shaker]

I think your missing some important ingredients in identifying good or better Flag prospects.
(1) Background
(2) Volume characteristics.
(3) Range and gaps (IE effort within the flag from the pole to internally)
(4) Age of pattern ( IE how old the flag itself is.3-6 bars which are tight - best )
(5) Angle of flag.
(6) Depth of flag relative to the pole.

Hi Tech A

Thanks for your reply.

Yes, I am thinking that this may not be a GOOD example of a flag. It also looks like a retracement to previous high as support.

I will continue looking for better examples.

Regards
Shaker

 

[Shaker]

Thanks Gringott's Bank

That is a great description. Where does that explanation come from.

Regards
Shaker

 

[Shaker]

hi have a look at ipp almost perfect set up

cheers

Thanks Stickman

Yes, that looks good. Pole length 21c reducing volume in a sideways consolidation. High % pattern.

Regards
Shaker

 

[Gringotts Bank]

Thanks Gringott's Bank

That is a great description. Where does that explanation come from.

Regards
Shaker

Just a collection of ideas gathered from various places over many years. But you're on the right track - flag/pennant is a high probability bet. Since most people trade the upside break, it's better imo not to be on that same boat, but instead anticipate it. If you can enter on a very contracted volatility day(s), you then wait a few more bars until it explodes again and if it explodes downwards you have a very tight stop. If upwards, you get both the immediate reward and the potential trendline break that follows. It increases potential reward significantly.

 

[Country Lad]

I think your missing some important ingredients in identifying good or better Flag prospects.

Not missing them tech, more like ignoring them for this thread. I was not about to go into a long dissertation regarding all the intricacies of flags in this post, instead, I was addressing this particular flag, this particular trade and when to trade it as per the original question.

Also, I probably do things a little different to those here who are traders based on pure technicals, so would probably confuse people. Many years ago I decided to concentrate on the simple things without all the intricate technical stuff. What a particular bar does here or there and for a particular bar to trigger a trade is all too hard for me. As a consequence, the time spent researching patterns has reduced substantially, and the results have improved.

So, just a few comments without going in to depth.


(1) Background
Not sure what you mean by the background. If it is where the flag fits in to the chart as a whole and any other factors, then yes of course those should be considered. I don’t look at any of that in depth because I can recognise them at a glance.

(2) Volume characteristics.
I generally don’t dwell on the volume as such, but look more at the way the volume is trading to establish whether there is positive or negative market sentiment to the particular share. The “rules” are supposed to be that the volume drops during the flag formation and increases at the breakout, but I have found that in fact the volume can give wrong impressions, and putting too much store in these “rules” can mislead.

(3) Range and gaps (IE effort within the flag from the pole to internally)
I don’t pay much attention to this, too confusing. There will be a break from the flag or not. A bit like a simple calculation - if there is a break AND market sentiment is positive AND other indicators are positive THEN it is a trade, ELSE it is not a trade

(4) Age of pattern ( IE how old the flag itself is.3-6 bars which are tight - best )
The pattern of the flags are indicators and as Bulkowski says, high and tight are the more productive ones. I lose interest in flags more than about 10 or 12 bars, particularly if it doesn’t look good on a P&F and if the market sentiment is negative.

(5) Angle of flag.
In my experience, the performance is not consistent for particular angles. Can be influenced by the market, as I indicated below. Let’s face it, flags perform in a similar way to pennants, so angles and shape can vary.

I have found that the flags most likely to perform are the ones which results in a good looking pennant in P&F in good looking P&F chart.

Cheers
Country Lad

 

[tech/a]

CL
Comment was meant to address all in the thread
Not specifically yourself.

Points are meant for ponder.

 

[stickman]

see how mgx opens on monday

 

[Shaker]

see how mgx opens on monday

Funny what we see. I see that as 3 points of a sym triangle. aggressive entry potential after 4th point or entry on breakout.

Will watch Monday to see what forms.

Thanks again

Shaker

 

[Country Lad]

stickman, that is a good one which I have on my watchlist for a reason in addition to the flag



If you look at charts which have had good movements up or down, you will find all sorts shapes of flags or pennants in both uptrends and downtrends all over the place. Your MGX is a good example.

They are very common patterns and each on needs interpretation as the failure rate is over 30% before a break is confirmed.



Cheers
Country Lad