First Look and Setting a Sell Limit
Looking at the current price level and its behaviour, we can easily identify the pole of the flag and the diagonal channel which price constantly rejects.
Price is currently making its way upwards to retest the upper channel. This would be a perfect opportunity to set a sell limit so as to enter the market.
As you can see in the image above I've set a sell limit slightly above where price is and where I predict it will retest before making its way down.
After setting my sell limit, stop loss and take profit levels, I left the order to run its course. My order was set on 10/07/2017 and I took profits on 11/07/2017 for about 58 pips.
If you look at the image closely, you can see that my order did not get filled where I wanted it to which was at the upper channel of the flag. Nevertheless, price broke out, made a double bottom, proceeded to go up where my order got filled and continued its way downwards again to my take profit level.
In a nutshell, this was still a very good flag pattern trade. If you wish to learn more about pattern trading or just trading in general. Do feel free to check out the ElementaryFX website.
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Working With The Breakout
From the image above, we can establish a valid bearish flag formation. Price has broken out from the flag's channel and is making its way down.
Most traders would either sell at market or choose not to enter as they feel that since price has already broken out from the flag, they have loss the opportunity to enter the market.
However, not many traders realise that whenever price breaks out from a channel or a level of resistance, price is very likely to retest it again before making its way down.
Entering The Market
To set a level in which I would like to enter the market. I used the Fibonacci Retracement tool and took the swing of the lowest point to the highest point of the flag channel. I then realise that price has stalled at the 61.8% retracement of this swing (as seen in the image above).
The 61.8% Fibonacci level as we all know is a very strong point of resistance where price usually respects. As such I set my sell limit order at the 38.2% level of the swing as price is very likely to retrace upwards where the 38.2% Fibonacci level would serve as a price ceiling.
My predicted movement of where price would go can be seen by the black arrows which I've plotted in my analysis.
As predicted, price did retrace upwards where I got filled, respected the 38.2% Fibonacci level and continues making its way down further where I took modest profits of 54.3 pips.
Identifying The Impulse
From the image above, we can clearly see an impulse move by the market represented by the bullish green candles. It is also highlighted by the light blue trend line. Price reaches a point where there are too many buyers in the market. It reacts to this by making a move downwards.
The bullish impulse is closely followed by a diagonal consolidation downwards. This move forms a channel which price constantly rejects which I've identified by the dark blue trend lines.
The Trade Plan
The next step would be to figure out when to enter the market. At this point in time there are a few options we can look at. Entering at market, setting a buy limit order or a buy stop order. Ultimately, this boils down to preference. Aggressive traders would either enter at market or set a buy stop order to get filled.
Being the conservative trader that I am, I always believe that when price makes a breakout from any channel whatsoever, there is a possibility that breakout is false and can make a reversal which can lead to huge losses.
As such I waited for the breakout and set a buy limit order at a level where price would retest the channel once again which now acts as a support.
Watch The Pips Fly
Now that we've set our order and did our analysis, we wait and see what price does.
As predicted, price retested the channel again which allowed me to get filled. Shortly after, price reversed and made a strong bullish move upwards where I took profits for 38 pips.
You can watch the analysis video below.
Thank you and safe trading!