Like any other technical structure we trade, there will always be exceptions to the rule.īut being a great trader is about stacking the odds in your favor. Now, that doesn’t mean that every structure such as the one above is going to break in the opposite direction of the trend. Think of them as another exhaustion pattern. The angle of the structure above was cause for concern if you had been a buyer during this time.īecause sloping flags are very similar to rising and falling wedges, which often signal a reversal. Had you known about the implications of an upward sloping flag you could have avoided buying that break and getting trapped on the wrong side of the market. ![]() A rally had been in place for several months, yet instead of consolidating in the opposite direction of the trend, it developed in the same direction.Īlso, note the false break above resistance. The very first thing to notice about the formation above is the angle at which it formed. Now that we’ve identified the Forex flag pattern let’s move on to the meat and potatoes of today’s lesson. It allows us to catch the trend as it resumes and gives us the ability to protect our capital with a strategically placed stop loss. During times of consolidation, this exchange of hands becomes amplified as participants book profits or establish additional positions.Īs price action traders, it’s times like this that we need to be on high alert for favorable breakout opportunities. That same cycle of buying and selling happens throughout the life of a trend. You likely didn’t catch the whole move but rather entered after it was established and exited before it ended. This scenario makes sense when you think about the last time you caught a profitable trend. As you may well know, a healthy trend is one that pauses from time to time to rid itself of the short-term traders and accumulate new buyers or sellers. Longer trends will often create designs other than a wedge or a flag.For starters, they represent consolidation. A typical wedge or flag lasts longer than one month but less than three months. ![]() Since the data creating the design is typically slanted against the current trend, a descending flag is considered a “bullish” indicator, while a wedge is viewed as a “bearish” predictor. A bullish signal occurs when prices break above the upper trendline. This is because prices edge steadily lower in a converging pattern i.e. Unlike the Triangles where the apex is pointed to the right, the apex of this pattern is slanted downwards at an angle. A bearish signal occurs when prices break below the lower trendline.Ī Bullish Wedge or Flag consists of two converging trend lines. This is because prices edge steadily higher in a converging pattern i.e. Unlike the Triangles where the apex is pointed to the right, the apex of this pattern is slanted upwards at an angle. ![]() The “falling wedge” is often called a “flag” since it more resembles a pointed flag more than a typical triangle.Ī Bearish Wedge, or Flag, consists of two converging trend lines. The wedge need not be upward facing and can easily be an inverted triangle. A wedge in the financial universe describes a triangular shape formed by the intersection of two trendlines, which form the apex.
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