About Flag Strategy: what so special about it?
Today, we will consider the binary option trading strategy, named after the figure called “Flag“. I would like to say, that this figure occurs in the charts quite often, which suggests a large number of signals taking place on it.
This time we are going to look at the most profitable option – intraday trading strategy.
Nevertheless, one should not neglect this approach in long-term trading. As in our case we are studying the figure for trading intraday, the timeframes of the analyzed charts are five-, fifteen- and thirty-minute.
Graphical figure of the Flag is very similar to the figure “Pennant“. Both are trend continuation patterns, both appear on the chart after sharp movement of quotations upward or downward, exactly when the price rolls back a little from the positions conquered earlier.
In the end, a flagpole is their common distinctive feature, then a significant movement takes place, and the data graphic patterns are formed after it.
As we can see, the price, making a big jump up, then stops, starting to take the opposite direction (coming to correction). Meanwhile, the lines of support and resistance, that are substantially parallel with each other, form. This means a sharp decline in the number of buyers in the market: some of them start taking profits, and this, in turn, leads to a rollback of the price. Once the upper Flag’s limit is broken, the trend continues rising.
Talking about the figure of the Flag in terms of a downward trend, the total picture looks with an accuracy to the contrary. Price, falling for a couple of dozen points in a short time, started to consolidate in a narrow range, which formed the body of a figure “Flag”. When consolidation takes place, the price continues its way to the bottom. On the chart, you can see it like this:
Entry points for the option to purchase:
If you consider buying a Call option for intraday trading, first of all, it is necessary to check and track the movement of price in terms of the American and European session active trading – in the matter of currency pairs including the pound, the euro, the dollar in the numerator and the main raw material tools. If we see a sharp move upwards, we look forward to the appearance of the chart pattern “Flag”. After we carry out the lines of support and resistance, we are waiting for breaking up a figure, then, we conclude the Call transaction, waiting until the rising candle closes above the resistance line carried out.
Entry points for the option to sell:
For the transaction on the option Put, we need to wait for the formation of the downward flagpole, that is a sharp decrease in the asset price, after which we should carry out the lines of support and resistance. If the lines are parallel or nearly parallel with each other, then we have the Flag figure. We enter the market when it breaks down (i.e., when the candle is closed below the line of support).
Since the graphic pattern “Flag” is very similar in nature to the pattern of Pennant, it is logical to assume that the types of options you can work on this strategy are also similar. That’s true. In addition to classic options, Out Range and No Touch options are also recommended to use in the trading system. Being traded in the option of setting the levels “no touch” and “range”, which begins with the flagpole maximum or minimum, they show good results. Moreover, such options’ profitability exceeds the profitability of the classic options, including guaranteed profit in case of winning.
TERMS OF EXPIRATION
Terms of the option expiration should make four timeframes, as it was in Pennant strategy, or in the end of trading session. If these timeframes are low (5-15 minutes), setting 20-60 minutes expiry date is worthwhile. With a higher timeframe, the expiry date of the option should be 17-21-0.00 GMT, depending on the time the pattern Flag forms and breaks through.
Through many tests, we managed to determine that the Flag figure at the moment shows the profitability of about 65%. Signal fidelity is not high, but it is able to close a profitable transaction. At the same time, following the rules of closing the transaction not after candle closure but waiting for the closure of the next raises the level of profitability to 69%. But the options Out Range and No Touch, as a part of this strategy, show quite good results, namely – 87% and 82%.
Suppose, the figure Flag occurs in the charts quite often – almost weekly. Thus, you have to keep this in mind when managing your capital. Entering a transaction with the maximum possible capital, in case if some other signals on other strategies occur, you will have to pass them, waiting for the option concluded today with the considered strategy to expire. Therefore, we recommend entering a transaction with the maximum risk of 1-2% of your deposit.
- Appears in the charts quite often
- Suits well for Out Range and No touch options (you can make even bigger profit than with classical options)
- Looks similar to the Pennant, thus some traders can mix them up occasionally
- Signal fidelity is not too high
That’s all for now. Got any questions? Just ask the expert!