Flags & Triangles

Explanation: 
Flags and triangles form when a stock is making lower highs and higher or equal lows. The stock is failing to start a new trend and the range is tightening. Similar to a coiled spring, as the range gets tighter, the eventual breakout or breakdown can be fueled by significant momentum as a new trend forms.  Click here to see an illustrative example of a bull flag, or click here to see a real example. A triangle is the same as a flag but doesn't have an extended move up or down to create the flagpole.  An inverted triangle is just the opposite of a triangle except the resistance level is horizontal and the support level is ascending (see BA example below).

What to look for:  

  • A stock is consolidating below a descending resistance trendline.

  • While failing to make new highs, the stock is also failing to start a downtrend.

  • Average or below average volume while in consolidation.

Timeframe(s): All timeframes (the size of the move is typically proportional to the timeframe it is observed in).

When to enter:

  • As the stock breaks out of the descending trendline or breaks down below the horizontal or ascending support line.

  • The move should be on increasing volume.

  • Lower risk entries exist after confirmation of the move with a second favorable candle on increased volume or a pullback and continuation.

Profit Target: 
Take profits at 2% and 5% on the way to the next level of support or resistance (either from a price line, trendline or moving average).

Stop Loss: 
Just below the breakout spot or just above the breakdown spot.  Alternatively, depending on your risk tolerance, you can use another significant level of support or resistance (such as a price line, trendline or moving average).

Examples:

ROKU - Bull Flag Breakout
ROKU - Bull Flag Breakout
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RCL - Bear Flag Breakdown
RCL - Bear Flag Breakdown
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BA - Inverted Triangle
BA - Inverted Triangle
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NIO - Triangle Breakout
NIO - Triangle Breakout
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