![]() The pattern is considered successful when price has achieved a movement from the outer edge of the pattern equal to the distance of the initial trending move that started the channel pattern. This pattern is complete when price breaks through the upper trendline in an ascending channel or below the lower trendline in a descending channel pattern. The descending channel pattern is defined by a bearish trending move followed by a series of higher lows and higher highs, that form parallel trendlines that contain price. The ascending channel pattern is defined by a bullish trending move followed by a series of lower highs and lower lows, that form parallel trendlines containing price. Note that the channel pattern is similar to the flag in that they both have periods of consolidation between parallel trendlines, but the channel pattern is generally wider and consists of many more bars which increases its strength and success rate. The channel price pattern is a fairly common sight in trending moves that have good volume and acts as a delayed continuation pattern. Note that most pattern projections are measured from the breakout point, but flags, pennants, and channel patterns are all measured from the outer edge of the pattern instead as shown by the red arrows in the chart examples. This pattern is considered successful when it breaks the upper trendline in a bull flag (or the lower trendline in a bear flag) and then proceeds to cover the same distance as the prior trending move starting from the outer edge of the pattern. The higher and tighter (narrower) the pattern, the higher percentage that the pattern will break favourably in the prevailing trend direction. The best flag patterns have two features: 1) a very strong run in price (near vertical) prior to the setting up of the flag and 2) a tight flag that occurs right on the upper (or lower) edge of that run. ![]() The flag pattern appears as a small rectangle that is usually tilted against the prevailing trend in price. ![]() Longer and wider patterns are defined as channels (see below). These patterns are small hesitations in strong trends, so they are usually only composed of a small number of price bars (about 20). It consists of a strong bullish trending move followed by a rapid series of lower highs and lower lows for a bull flag, or a strong bearish trending move followed by a rapid series of higher lows and higher highs for a bear flag. I will try later to see if I can get some charts to explain this narration.The flag is a continuation pattern that can occur after a strong trending move. If there are no strong supply and demand zones to the left, I can place my TP as far as possible. Remember that the market leaves behind clues of potential reversal points and it is just a matter of determining which zones are weak and which are strong. TP profit would also depend on the price action to the left. This yields an much better risk-reward and is also a realistic place. Otherwise, I just place it 2-5 pips above the QM level to take care of spread. That reduces my risk-reward but it is a more realistic place to place the SL. If for example there is a supply zone near the HH and above the QM level in a bearish QM set-up, I may enter at the QM level and place my stop above the HH. It should depend on one's reading of the market at that point in time. The issues of placing stops (SL and TP) are more trade-management related issue and I generally prefer to talk of trade execution rather than trade management because there are no general rules for SL and TP. I have tried several systems but none of them have helped me in understanding market movements like these concepts have. I find that the concepts of engulfing patterns, quasimodo, supply and demand are invaluable if one is to be able to read the market well. I think that beyond having a strategy it is important to be learn how to read the market well and to understand what story the price action is saying.
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