Here's how the flag and pole pattern typically forms:
#Pole Formation:
Upward or Downward Move: The pattern begins with a strong and sharp price movement, either upward or downward. This initial move is referred to as the "pole" and represents a significant and rapid change in market sentiment.
#Flag Formation:
Consolidation: Following the pole, there is a period of consolidation where prices move in a horizontal or slightly counter-trend direction. This consolidation forms a rectangular-shaped pattern known as the "flag." During this phase, trading volume often contracts.
#Breakout:
Continuation: The pattern concludes with a breakout in the direction of the initial pole. If the pole was upward, the breakout is typically to the upside, and if the pole was downward, the breakout is typically to the downside.
#Volume Consideration:
Volume Analysis: Traders often analyze the volume during the formation of the flag and the subsequent breakout. Generally, a breakout with higher volume is considered more significant and is thought to confirm the validity of the pattern.
#Target Projection:
Measuring Move: Traders may use the height of the pole to project a target for the ensuing price move. This involves measuring the distance from the beginning of the pole to the high or low point of the flag and then extending that distance from the breakout point.
#Pole Formation:
Upward or Downward Move: The pattern begins with a strong and sharp price movement, either upward or downward. This initial move is referred to as the "pole" and represents a significant and rapid change in market sentiment.
#Flag Formation:
Consolidation: Following the pole, there is a period of consolidation where prices move in a horizontal or slightly counter-trend direction. This consolidation forms a rectangular-shaped pattern known as the "flag." During this phase, trading volume often contracts.
#Breakout:
Continuation: The pattern concludes with a breakout in the direction of the initial pole. If the pole was upward, the breakout is typically to the upside, and if the pole was downward, the breakout is typically to the downside.
#Volume Consideration:
Volume Analysis: Traders often analyze the volume during the formation of the flag and the subsequent breakout. Generally, a breakout with higher volume is considered more significant and is thought to confirm the validity of the pattern.
#Target Projection:
Measuring Move: Traders may use the height of the pole to project a target for the ensuing price move. This involves measuring the distance from the beginning of the pole to the high or low point of the flag and then extending that distance from the breakout point.