Introduction to the Flag and Pennant Pattern Indicator
The flag and pennant patterns are two of the most popular trend continuation price patterns. These patterns signify the market contraction phase or pullback which occur after an initial price thrust. These market contractions or pullbacks are typically followed by another strong momentum price movement in the direction of the prior price thrust which is why these patterns tend to be very effective.
What is the Flag and Pennant Pattern Indicator?
The Flag and Pennant Pattern Indicator is a technical indicator which automatically identifies flag and pennant patterns. This indicator does so by identifying minor support and resistance lines which are also the support and resistance lines of such and flag and pennant patterns.
This indicator plots green lines to indicate bullish flag and pennant patterns and blue lines to indicate bearish flag and pennant patterns.
How the Flag and Pennant Pattern Indicator Works?
The Flag and Pennant Pattern Indicator detects minor support and resistance lines which have the same length in bars. It then detects the direction of the prior market pulse or thrust, which forms the pole of the pattern, to identify the direction of the pattern. It then plots green trendlines if the prior price thrust is bullish and blue trendlines if the prior price thrust is bearish.
How to use the Flag and Pennant Pattern Indicator for MT4
The Flag and Pennant Pattern Indicator has several options within its indicator settings which can modify the sensitivity of the indicator.
“Channel Period” modifies the maximum number of bars which would qualify as a minor trendline for the patterns.
“Slope Period” modifies the slope of the trendlines which filters the trendlines of the patterns.
“Pennant Pattern Facter” modifies the factor in which the trendlines slope in the opposite direction to detect a pennant pattern.
“Flag Pattern Facter” modifies the factor in which the trendlines slope in the same direction to detect a flag pattern.
This indicator should be used to trade flag and pennant patterns as intended. However, traders should also visually qualify the identified patterns if they are indeed flag or pennant patterns. Traders may trade breakouts from the pattern at the close of the candle as the entry signal.
Buy Trade Setup
When to Enter?
Visually qualify a bullish flag or pennant pattern identified by the indicator. Open a buy order as soon as a bullish candle closes above the resistance line of the pattern. Set the stop loss on the support below the entry candle.
When to Exit?
Close the trade as soon as price action shows signs of a possible bearish reversal.
Sell Trade Setup
When to Enter?
Visually qualify a bearish flag or pennant pattern identified by the indicator. Open a sell order as soon as a bearish candle closes below the support line of the pattern. Set the stop loss on the resistance above the entry candle.
When to Exit?
Close the trade as soon as price action shows signs of a possible bullish reversal.
Conclusion
Aside from closing trades on potential reversals, traders may also use the length of the pole of the pattern to approximate a take profit target, which is a basic flag or pennant exit strategy.
This indicator is a very useful indicator. It is not always accurate which is why traders should still visually qualify the identified patterns if they are indeed flag or pennant patterns, but it helps traders spot patterns which they would have missed on a naked chart.
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