This Weeks Watch list is packed with great setups. So much so that I am going to skip the review video and go over how I trade Flags in the HPS system. This week's video has 3 Best Bets that all come from the same sector..Can you say sector rotation... Well would like to see that this next week and that could also be a safety sector that might find some interest if the market pulls back some soon. But I am not calling for a top and will just see how things look early Monday morning. Markets still will be focused on headline risk. I like the gradual scale in on the SPXU but not very small increments.
This next part is a small piece of the HPS methodology section: How I trade Flags.
Flags and Pennants: Whats great about flags? Well for one thing they are everywhere and on every time frame. I actually have a technique on the 1 minute chart that is up close to 85% success rate when it appears. This you will find on the futures HPS section. Flags also usually consist of multiple indicators that I use in the HPS. It is a great pattern but just like everything else you need to have converging indicators line up at the same time.
Flags and Pennants are short-term continuation patterns that mark a small consolidation before the previous move resumes. These patterns are usually preceded by a sharp advance or decline with heavy volume and mark a mid-point of the move.
My # 1 Setup when trading a flag is that I want the stochastics to be oversold and at that time the price to be above the 20 ema or 50 ema. This is a guide for me and not a hard set rule. I mostly look for this set up on the daily time frame. In some cases the price will chop around the 20-50 ema so you don?t want to be so exact that you miss some great opportunities. Lots of times you will see the price drop below the 20-50 ema just to see it close back above it by the end of the day.
The keys are:
1. Trend is intact, we are pulling back but holding above the previous pivot low.
2. Stochastics making a fast rotation back to oversold levels <20 as the price makes a very organized pullback but hold above the 20-50ema
3. Flags like any pattern have a unique look to them. Basically they are mini channels that should be traded like any other channel (Channel Lesson) ?Make sure it looks like a flag?
This combination has had high probability of success. In My experience it works over 70% of the time. That would increase depending on other convergences at that time. (Trend Lines, Reversal candles,ect)
Flags are continuation patterns and usually show up multiple times in a row, but it is important to identify them early in the trend so you can profit form them.
Here are some examples of my Trade-able Flag Setup
Lets start with the Daily Time frame:
$DNKN Larger Image view
Now lets break down how to trade the flag
Breaking down the daily time frame into a 60 min time frame shows you a great entry technique called the ?Daily 60 Stochastic Combo? which is a multiple time frame trigger when both the 60min stochastics oscillator get oversold at the same time the daily stochastics are oversold.
Because the daily is a slow moving time frame the combo doesn?t happen every day but when it does it should be considered.
The Next chart is the same flags that we had on the daily now broken down to the 60 min time frame. You can see the channel much more in detail and the much quicker rotation of the stochastics.
$DNKN Chart 2
This above technique as with any setup is dependent on market conditions. Flags are great in a trending market but trends can be defined and spotted in any time frame. You can have a trend develop on the 5 min time frame or a 1 min time frame. So understand your time frame and what to expect from it. The 60min daily combination is great for swing trades but also because the 60min is a trigger could be a great scalp also.
You can trade the 60 min flag by itself you don?t have to always wait for the combo to setup. I will go over the 60-15-5 combo in the next section.
$DNKN Chart 3
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