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How to use flag patterns to profit from forex trading

by , 26 June 2015

Technical analysis can be an extremely useful tool to help you see where the forex market could be going.

Get these predictions right and you make a profit.

Take continuation patterns. Spot these and you have the chance to exploit a powerful trend.

One such continuation pattern are flags.

Let's take a closer look at how you can use these to spot a money making forex trading opportunity…

Flag patterns can be very profitable

Flag patterns are one of most popular and effective continuation patterns in forex trading.

Continuation patterns show temporary periods of sideways price action in a currency pair, which has been in an established trend. This pause occurs, then the trend resumes.

During this pause, the price just goes up and down within a trend.

These patterns can be very useful if there’s been a strong trend in play, but you missed it. Spot these patterns and you can be waiting to pounce on a trade when the trend resumes.

Have a look at the chart below…

Chart of flag pattern

The chart shows a bullish flag. This occurs during an uptrend. Spot one of these and there’s a good chance a currency pair’s trend is just taking a breather and will resume.

You’ll notice that the area where the price moves sideways is downwards sloping. In other words, against the trend.

How flag patterns form

This happens as the strong upward trend came on high volume. The price then consolidates downwards as volume falls. The sellers are taking control, but on lower volume.

Then the buyers start piling back into the forex trade on high volume. This leads to a breakout, Frank Hemsley in Profit Watch explains. The trend resumes.

You get bearish flags too. These are mirror images to bullish flags. Spot a bearish flag and it’s likely a downward trend will resume.

So there you have it. How to use flag patterns to profit from forex trading.

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How to use flag patterns to profit from forex trading
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