Trading strategy on the price model "ABC Flag"

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The "Flag" pricing model is quite common on the foreign exchange market It is usually described as a great pattern, but oddly enough, there is rarely any mention of clear, working strategies based on this Technical analysis figure. Let's look at a fairly simple trading strategy using a combination of - "ABC Flag.".

Description of the trading strategy based on the "ABC Flag" price model

Quite often the figure of technical analysis "ABC Flag" appears after a long or sharp movement and is a consalidation zone for the subsequent continuation of the trend. Let's consider this strategy in more detail:

1. On the price chart it is necessary to find a sharp (impulse) movement and watch for further developments.

2. We need movement followed by consalidation.

3. To make a deal, we must wait until the formation of Flag pattern.

4. On the price chart we need to see 3 waves: A, B, C in Flag" figure (see example #1):

5. Entry into the market is made at the end of the C wave in the direction of trend on a limit order.

6. It should not be forgotten that having ABC wave combination is not enough to enter the market, as well to make a deal to find 3-4 trading signals for entry, such as divergence, the pullback at Fibonacci levels (with the good if our point C will be at 38.2% or 61.8% from the previous movement).

7. After we have defined the movement and found points A and B, we draw a line through the vertex and point B and parallel to it through point A (for a downward movement vice versa) - we have price channel.

8. And only now can we put limit order. It is set on the channel line drawn through point A, to buy or sell, respectively. Do not forget about additional trading signals - divergence, Fibonacci, moving averages, etc. (see examples of additional signals at the end of the strategy)

9. Take Profit can be put on the highest high.

10. Safety stop loss is issued for the following Fibonacci level, e.g. 50% (if C falls on 38.2%, it is advisable to use stop loss at 61.8%, if C is at 61.8%, then the stop-loss - at 76.4% - further trading is not recommended, because the market can turn around).

11. It is also worth remembering that the market is not perfect, so if the limit order did not work, and headland bar has already formed should buy at the market price, because the point C may not reach or be under the channel of correctional movement.

Such combinations occur infrequently and should be tracked in different time intervals.