How to Trade Forex Flag Patterns

Flag formations are highly profitable trading strategies when you are able to identify one quickly in a moving market. The next two examples will teach you how to trade a flag. Let’s look at the first example.

1. Identify the main trend. A downtrend identified by lower lows with blue line.
2. Look for formations. Flag formation found boxed in pink.
3. Enter short at black line flag corner.
4. Set step-loss at red line flag corner.
5. Let price run until support is found at a certain level, the green line, then take profit.

Now, let’s take at example two.

1. Identify main trend. An uptrend is identified by higher highs, the blue line.
2. Look for formations. A flag formation found boxed in pink.
3. Enter long at the black line flag corner.
4. Set stop-loss at red line flag corner.
5. Let price run until price resistance occurs. Lock in profit at the green line.

Do not be greedy, as you can see price retraces after peaking. Do not be discouraged if your stop-loss is hit. Flag trading is meant to have a tight stop-loss, while trying to capture big profits Notice that the risk to reward ratios are about 2:1 or higher. Even if you lose half of your trades, you will still end up profitable, as long as you trade with a consistent trade size over a large number of trades.

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