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.
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.
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