Flag or Pennant Patterns for Re-Entry
A flag or pennant pattern can be a good way to re-enter the market after you have been stopped out. They usually happen when the stock has been in an upward movement for some time and the price consolidates before continuing the previous trend. It is important to note that flag or pennant patterns can happen in a bull market as well as in a bear market.
Many day traders and intraday traders are using patterns for the entry signals. I am looking at it on a weekly chart. Recently we had two very good examples in the ASX 100, one of the stocks NWS (News Corp) was (and is again) part of the current portfolio.
We sold NWS on Monday 7th December as we had two closes below the downtrend band. Interestingly enough it was in the same week that it broke through the flag that had formed before. We bought it again on the 14th December and the stock continued to rise sharply. It’s coming down again this week, so it will be a close one to watch.
CBA (Commonwealth Bank Australia) was another stock forming a pennant pattern. We didn’t own the stock, nor did it give any sell signal during the slight decline. Hence we did not add it to the portfolio when it broke through the pennant close of business 31st December. But as you can see we had two weeks of good gains so far.
If you like to find out more about flag or pennant patterns, check out two of my favourite sites. The Stock Bandit is writing about Flag Patterns and Simple Stock Trading talks about flag and pennant patterns as well. Both sites focus more on daytrading.
Do you actually use the patterns as a buy signal?
Tim, currently I am using them only as re-entry when I got the signal to sell the stock.
I am doing some backtesting as how I can use them to buy for daytrading.