This model, which is the basis of the strategy, is found on the graph often enough. Almost in any growing or declining market the figure of “Flag” appears.
At the same time, this pattern may occur repeatedly. It is a signal to the fact that the trend will continue. While looking at the graph at the time of its formation, it seems that the main direction of movement is broken and the market will go in another direction. In fact, this feeling is deceptive. The Flag is not a reversal of the trend, but its continuation after a short pause.
You can explain this figure this way. Initially, during a strong trend, for example, the upward one, there are a large number of buyers on the market. At the same time there are much less traders. The price of the tool is growing rapidly. However, as the upward movement, the number of buyers and traders is gradually equalized. The price increase of the tool stops. The profit fixation begins. It is at this point the figure “Flag” can appear on the graph.
If there is a bullish trend on the graph (i.e. increasing), the flag will look like a parallelogram pointing downwards. Accordingly, the name of this pattern has appeared because of his resemblance to the real flag. The same, only exactly the opposite, applies a pattern that is formed on the declining market. Parallelogram is pointing upwards.
Binary options trading strategy “Flag” on the growing market encourages traders to buy Call options during the penetration of local resistance level (line, which can be carried out over the tops of the figure). Breaking of this figure from bottom to top in this case provides a strong impetus for the continuation of the trend. So Call options buyers will be able to make a profit. It is important to remember that the purchase of the option should be undertaken only after the price on the graph will go up beyond the “Flag”. It is then that we can say that this figure is worked off. Trading within this graphic pattern is not recommended.
Binary options trading strategy “Flag” in a bearish market (when a downward trend takes place) recommends buying Put options when the price on the graph breaks local support level (the line can be drawn on the low price). As the situation with the “Triangle” in the growing trend, a break of the lower bound of the “Flag” gives a strong impetus to the further downward movement. The time of purchase of a Put option comes when the price goes beyond the figure. It is not recommended to do it earlier, because the model is still in its formative stages and it is unknown whether it will be “Flag” or reversal towards the uptrend.
This graphic pattern can appear at different periods of time, so you can make the purchase of options with different expiration dates.
That’s all for now. Got any questions? Just ask the expert!