Flag and Pennant Strategy: similarities and differences
Flag is a figure which is limited by parallel lines.
Pennant is a figure which is limited by converging lines.
Many traders believe that the pennant figure is similar to the triangle, but it should be noted that the formation of the triangle is much longer.
In simple terms, the figure of flag or pennant is a “pause” in the trend, when market participants “gain strength” for its continuation.
At the time there is a breakdown of the flag or pennant boarder, we get a signal that the current market trend is likely to continue.
Flags and pennants are often used to track changes in the market, while operations with binary options. Brief consolidation is another name for the emergence of a figure.
After such consolidation, the direction of the price movement happens in the direction of the trend. Flags and pennants are formed during the intensive trend development, with which they have a lot of similarities in the dynamics of construction. Charts are formed in a short time. Their formation will be carried out on the intraday chart.
Similar figures in the continuation of a trend provide reliability, if their direction is opposite to the direction of the trend. When the breakthrough of the figure happens, the amount of price movements will be equal to the volume that the price already performed before the formation of the figure.
A certain type of a figure called “Flag” will be formed when the moment of a pause between the periods of intense market movements comes. This signals that the price movement goes ahead of market fundamentals, and it needs rest to start following intense movements.
The form of the figure will be similar to the form of short-term price channel on a pole. Extremely strong price movement will play the role of the pole. On the chart it looks almost vertical. Flag, bent down, gives a bullish signal to traders, and the flag, looking upward, means a bearish signal.
Formation of the Pennant in the market is carried out in a similar way as the formation of the Flag. The only difference between these figures lies in their form. Pennant has a triangular shape, and looks like a flag on a pole. With the help of Flags and Pennants a trader can track a reversal trend in the market and invest in binary options in the most successful way. To do this, one should follow the direction of the flag and pennant: a reversal will happen when they turn around in the direction of the trend movement.
Flag and pennant are a continuation of the trend, and they rarely give false signals. It makes them more reliable as compared to the figures of the triangle or the price channel.
That’s all for now. Got any questions? Just ask the expert!