Monday, June 27, 2011
In a strong trend, a flag should move counter to the main trend, as in b13-23. As long as the flags move counter to the main trend, there is always the chance that the price will break back in the direction of the original trend. Even with a strong trend break, the expectation is that the previous extreme will nearly always be tested.
After a prolonged move, that is to say after many points and many bars and usually 2 or more pullbacks (although buy climaxes can have few or no pullbacks), a flag may move horizontal (b58-60) and then break(b61) in the direction of the original trend. Often this break will fail to give a scalp profit (b64 hi was 5tf above b60) and then turn down.
A FF can often turn into a W by giving two more pushes (b63, b64) and then turn down. Final flags that occur with TCL OS (b55,56) are often signs of trend reversal when they are preceded by a TL break (b46-49). A very large bar(b55) may precede the final flag and is usually the sign of a climax buying (or capitulation in a bear)