This pattern forms a basis of the strategy and can be encountered on the chart quite frequently. Practically, the flag pattern appears in any growing or declining market.
At the same time, such pattern can appear on repeated occasions. It signalizes that the trend will continue. However, when you look on the chart during its formation, it will seem that the main movement’s direction is broken and the market may move in the opposite direction. In the reality, this impression is false. The flag is not the reversal pattern, but the trend’s continuation after the short pause.
How is the flag pattern formed?
The following is the explanation of this pattern. Initially, if the trend is strong, for example, ascending trend, there is the generous amount of buyers in the market. The amount of sellers, at this time, is substantially lower. The tool’s price grows quickly. But while the ascending movement is occurring, the number of sellers and buyers equalizes gradually. The tool’s growth stops. And the profit taking starts. At this exact time, the flag pattern can appear in the market.
If there is the bullish (ascending) trend in the market, the flag will look as the parallelogram directed down. Thus, this pattern’s name originated because of its similarity with the real flag. The opposite situation is observed when it comes to the flag which is forming in the descending market. And the parallelogram is directed up.
In order to visualize this chart pattern, it is necessary to draw two parallel lines on maximums and minimums on the movement which is opposite to the main trend. It is also needed to mention that this trend has a trap for traders. Many people make mistake by understanding this trend as the signal for a reverse to the opposite side from the main direction. All the more so, in principle, all conditions of the new trend’s formation are abided. Maximums and minimums are lowering constantly. Within this pattern and the ascending trend bulls (buyers) allow bears (sellers) to slightly lower the price in order to level it up to the new extreme points afterwards.
How to use flag pattern to earn in binary options?
The flag binary options’ trading strategy in ascending market recommends traders to by the Call options when the local resistance is broken (lines that can be drawn on the tops of this pattern). Break of the flag from down to up in this case gives the strong impulse for the trend’s continuation. For this reason, the Call options’ buyers can earn profit. It is important to understand that the option’s purchase has to be carried out only when the price on a chart will exceed the flag upwards. In this case, it is possible to say that this pattern works off. It is not recommended to trade within this chart pattern.
The flag binary options’ trading strategy in the bearish market (when there is the descending trend) recommends buying the Put options when the price on a chart breaks the local support (line which can be drawn on the price’s minimums). As well as with the situation with the flag in the ascending trend, break of the bottom flag’s border gives the strong impulse for the further descending movement. The time of the Put option’s purchase comes when the price exceeds the flag’s borders. Doing this earlier is not recommended because the pattern is in the formation stage and it is unknown, whether it will turn out to be the flag pattern or the reverse to ascending trend’s side.
This chart pattern may appear on different time scales. For this reason, you can buy options with different expiration time.
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