The Flag price structure (up) formation happens when the stock moves up dramatically with a large volume spike. This is followed followed by a period of consolidation over several days where price falls narrowly with decreasing volume. This is then followed by a breakout in the direction of the previous trend with a high volume.
It's best if the pole formation coincides with a breakout over a previous resistance. The flag itself is a narrow slope down accompanied with diminishing volume. Flags are short-term price structures. The best time to buy is when the second breakout occurs (with high volume) giving a nice stop-loss and a high reward/risk ratio.
The psychology behind the move is that the first breakout usually happens with a fundamental news flow. The long-term buyers come in with euphoria and smart sellers depart. As the price begins to fall, the sentiment is still strong and this move occurs at low volume. Sensing the strong sentiment, fresh buyers jump in and push the stock even higher.
Watch these charts, there are others in the slide shows on the main blog page.
Happy Hunting!
It's best if the pole formation coincides with a breakout over a previous resistance. The flag itself is a narrow slope down accompanied with diminishing volume. Flags are short-term price structures. The best time to buy is when the second breakout occurs (with high volume) giving a nice stop-loss and a high reward/risk ratio.
The psychology behind the move is that the first breakout usually happens with a fundamental news flow. The long-term buyers come in with euphoria and smart sellers depart. As the price begins to fall, the sentiment is still strong and this move occurs at low volume. Sensing the strong sentiment, fresh buyers jump in and push the stock even higher.
Watch these charts, there are others in the slide shows on the main blog page.
Happy Hunting!
