A pattern is constructed by a descending trend or , followed by a pause in the or consolidation zone.
The strong down move is also called the flagpole while the consolidation is also known as the flag
The pattern comes after a strong move downwards. The stronger the move, the bigger the profit potential is.
As you can see in the figure below, after the market made a strong down move, it enters into consolidation – a very narrow range – to adjust to the new lower prices.
(The Psychology behind Pattern)
The pattern highlights a trading environment where the balance has shifted badly in one direction of the market (supply > demand). In turn, this will produce very little upside retracement, which allows the flag structure to take shape After the initial selloff, people who missed the train will panic and begin selling. More people will sell it during the flagpole stage.
During the pause or the narrow consolidation, people wait to get a higher price so they can sell. But since the equation is so imbalanced, this won’t happen. We get another smash that will make many people chase the move to the downside again.
follow our free telegram here guys