The pole and flag pattern is a classic continuation pattern in technical analysis, often signaling that the current trend is likely to continue after a brief consolidation. The pattern consists of:
Pole: A sharp, nearly vertical movement in price reflecting strong market momentum.
Flag: A consolidation phase where price moves within parallel trendlines, usually sloping against the direction of the pole, indicating a pause before the next move.
In the provided chart of Muthoot Finance Ltd., the stock exhibits a textbook bullish pole and flag formation, suggesting potential for further upside if technical conditions are met.
How to Trade the Pole and Flag Pattern
1. Entry Point
Enter Long: When price closes above the flag’s upper trendline or resistance level on higher-than-average volume. This confirms the breakout and continuation of the uptrend.
2. Setting the Target
Target Calculation: Measure the distance from the lowest to the highest point of the pole. Add this value to the flag's breakout point to project the potential price target.
For example: If the pole is 400 points (from 2,300 to 2,700) and breakout occurs at 2,700, the target is 3,100.
3. Stop-Loss Placement
Set Stop-Loss: Just below the lower trendline of the flag or recent swing low. This minimizes risk in case of a failed breakout.
4. Volume Confirmation
Confirmation: A valid breakout should be accompanied by a spike in volume, reflecting renewed buying interest.
Pole: A sharp, nearly vertical movement in price reflecting strong market momentum.
Flag: A consolidation phase where price moves within parallel trendlines, usually sloping against the direction of the pole, indicating a pause before the next move.
In the provided chart of Muthoot Finance Ltd., the stock exhibits a textbook bullish pole and flag formation, suggesting potential for further upside if technical conditions are met.
How to Trade the Pole and Flag Pattern
1. Entry Point
Enter Long: When price closes above the flag’s upper trendline or resistance level on higher-than-average volume. This confirms the breakout and continuation of the uptrend.
2. Setting the Target
Target Calculation: Measure the distance from the lowest to the highest point of the pole. Add this value to the flag's breakout point to project the potential price target.
For example: If the pole is 400 points (from 2,300 to 2,700) and breakout occurs at 2,700, the target is 3,100.
3. Stop-Loss Placement
Set Stop-Loss: Just below the lower trendline of the flag or recent swing low. This minimizes risk in case of a failed breakout.
4. Volume Confirmation
Confirmation: A valid breakout should be accompanied by a spike in volume, reflecting renewed buying interest.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.