Flag formation

Flag formation

The flag formation provides signals for direction and price objective.
This formation represents a brief consolidation period within a solid and steep
upward or downward trend.

The consolidation itself is bordered by a support
line and a resistance line, which are parallel to each other or very mildly
converging, making it look like a flag (parallelogram) and tends to be sloped
in the opposite direction from the slope of the original trend, or is simply flat.
The previous sharp trend is resembles a flagpole.

If the original trend is going down, the formation is called a bearish
flag. The flagpole is measured between points A and B. The consolidation
period occurs between the support line B to E and the resistance line C to D.
When the price penetrates the support line at point E, the trend resumes its
fall, with the price objective F, measured from E. The price target is of about
equal amplitude with the flagpole's length (A to B), measured from the
breakout point through the support line (B to E.)

In the numerical example, the height of the flagpole is measured as the
difference between 140.00 and 120.00 equals 2000 pips. Once the support
line is broken at 125.00, the price target is 105.00, as 2000 pips from 125.00.