March 3, 2021

High Tight Flag Pattern Explained

High Tight Flag Pattern Explained

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The high tight flag pattern is one of the most bullish chart patterns that shows a strong trend followed by a trading range that could be setting up for another strong swing to the upside. 

  • It shows a chart is currently in a longer term uptrend.
  • The high tight bull flag is a version of the standard bull flag that requires a much stronger trend and a tighter price base for the flag. 
  •  It is a continuation pattern of the previous uptrend before the flag.
  • Price should  rise at least 90% or double in the 2 months or less before the flag price range forms.
  • A consolidation price range pattern forms after the large uptrend. The price range can look like a flag or a pennant or just a pause and base in the rising price. 
  • Volume should decline as the price range in the flag forms. 
  • The ‘pole’ is represented by the previous uptrend in price before a price consolidation.
  • The ‘flag’ is a rectangular descending price range after the uptrend to new higher prices stops. The flag has primarily lower highs and lower lows.
  • The signal of the end of the flag pattern and the beginning of a new potential uptrend is when the descending upper trend line is broken with a move upwards in price.
  • This pattern is thought to be the consolidation of the uptrend.
  • Traditionally the move out of the flag is thought to be potentially as big in magnitude as the uptrend before the flag begins.
  • The completed pattern is validated when price closes above the highest price in the pattern, which is almost always the peak of the flag. 
  • A breakout of the flag with higher than normal volume increases the chance of a continuation of the uptrend.
  • A stop loss can be set at the lower trend line in the flag after entry.
  • Of course this pattern does not work every time but when it does it can set up a huge win, but with all setups much of the edge comes from creating a good risk reward ratio through an initial stop loss to manage risk and a trailing stop to maximize a gain.

High Tight Flag Pattern Explained

Image created by Colibri Trader