The flag and pennant strategy is a very effective trading strategy, although newbie traders are not familiar with it. It is mostly used by the professional traders who have been in the industry for a while. It is advisable for newbies to adopt this trading strategy and make a part of their trading.

How Does it Work?

Just like the name, the flag and pennant is a candlestick formation in which when formed looks like a flag and pennant. The major difference between a flag and a pennant candlestick pattern is that the pennant chart pattern takes a triangular form, while the flag candlestick pattern takes a rectangular form.

All you need to is identify this patterns and take advantage of it. Here are what flag and pennant candlestick formations look like.

flags and pennants patterns

How to Trade with a Flag and Pennant Strategy

Using this strategy, what you need to do is identify the flag and pennant candlestick pattern. When you do that, wait until you notice a breakout on the support or resistance of the formation. After you’ve gotten a confirmation that there is a breakout, you’re expected to place a trade in the direction of the breakout.

For instance,  if there is an upward candlestick break out on a bullish flag or pennant candlestick pattern, then you should be preparing to enter a CALL trade. Likewise, the bearish flag and pennant candlestick formation, if there is a downward candlestick price breakout, you should be preparing to enter a put trade.

Below is an illustration of a bearish pennant with a price breakout from the support.

Bearish pennant

Tips for Using a Flag and Pennant strategy

  • Always ensure that there is a price breakout candlestick before entering the trade
  • Always using technical indicators to get a better view of the market