The FLAG is a formation which you find as a countertrend pattern within a trend … giving you a good opportunity for a reentry.
What you need:
You need a clear defined trend … the direction does not matter, but downtrends are usually sharper and quicker. Then you wait for the first countertrend and … here in the case of a bearflag, you connect the first 2 pivot lows after(!!!) the original downtrend and put the parallel onto the first pivot top BETWEEN (!!!) these lows. Now you have the flag.
How to trade it:
You wait for the breakout to the upside … in case of a bearflag … the capitulation of the bears … and fade the breakout (never!!! Forget a STOP).
The Minimum Price Target is the opposite trendline of the flag . which often is followed by the breakout into the direction of the former trend. The “Maximum” Price Target is calculated by doubling the width of the channel or (this is what I do) double of the difference in price between the sellsignal and the breakout into the direction of the old trend. One other “usual” target is a new low!
Remember: Bearflags rise … Bullflags fall … and usually have their final breakout in the direction of the original Trend!