Today I want to talk about the combination of Japanese candlesticks that will help you increase your profit. It’s a figure flag. It is found on the charts often and in most cases it works out the signal. However, it should be remembered that there is no such thing as a technical gravel analysis. False signals, too. In this regard, it is very important to take the necessary measures to limit the potential losses.
How the flag is formed
First, there should be a strong uptrend in the market. It’s gonna be a flagpole in the future. Then the price starts to move in the channel, which, as a rule, has an inclination in the opposite direction to the main movement, i.e. downwards. Visually, it looks like a canvas of flags. The flag is turned upside down, and its cloth is directed upwards. The formation of this model usually happens quite quickly. For the flagpole it will be enough to see about ten candlesticks on the chart. You can see an example of a flag on the screen that I will offer you later in this article.
Opening trade positions
Because this candlestick figure belongs to the trend continuation models, deals are opened when the price of one of the cloth lines breaks through. For an uptrend, it will be the top line (resistance). For a downtrend – the lower line (support). I also want to note that the cloth may not have an inclination, that is, it may be located horizontally. But in this case, the signals for the breakdown of its lines are considered to be less strong. The percentage of their work time is lower. To assess the quality of the model, it is also necessary to monitor the dynamics of volumes. A figure is considered to be strong if there has been a significant increase in volume during the formation of the flagpole. And at the stage of formation of the cloth the volumes gradually decreased.And now let’s see an example of a bullish flag:
Check out that the volumes were high when the flagpole was formed, and when the formation of the cloth began, they dropped significantly. Opening a trading position – to break the resistance line. Stop-loss is set slightly below the minimum cloth. And the size of take-profit is equal to the height of the flag.In conclusion, I would like to note a few more important points in the application of this candlestick model.The bigger the angle of inclination of the cloth is, the stronger is the signal to enter the market at its breakthrough.
If flag shape has formed, but no break-down has occurred for a long time, the probability of signal processing decreases. In this case, it’s better not to open a trading position.
The problem may be false. Therefore, in order to reduce the risk, it is better to open an order, provided that the price has returned to the line after a break-down and fought off it.Fyodorov’s Inga18.06.2018