A flag chart pattern occurs when price experiences a strong up or down movement, followed by a period of ranging movement then after continues to move in the original direction.
A flag pattern can be seen in the hour time frame of the EUR/USD, yesterday the Euro fell around 90 pips against the Dollar, before entering a small range at the end of the London session. Today saw the final leg of the flag pattern with the EUR/USD falling about 70 pips.
Sometimes the EUR/USD can leave small hints as to which direction the price is most likely to move. I will describe one hint I like to look for.
After a big move such as the one we witnessed yesterday on the EUR/USD, I will wait until the price starts to range, I will then draw a support and resistance level for the range, next I will wait.
I will be waiting for a break in either the support or resistance, this will usually happen in the early hours in the UK when volatility is low, (around 6-7am) I will wake up early to check the support and resistance lines I drew.
In the case of today the resistance level was broken, but it’s a false breakout (which is what I’m looking for). The price then reversed and headed downwards through the broken resistance and breaking the support level.
Below we can see this happened also yesterday at the start of the first leg of the flag pattern.