How to trade with an oscillator

[Smart_trade]

ST,
Can I bother you for a lesson please? I have tried to look up bear flag and bull flag, but things are as clear as mud after reviewing various definitions of the same. Would you please teach me how to identify and differentiate between these two flags?

Bull Flags and Bear Flags are corrective patterns which we come across very regularly. I am posting a Tata Steel hourly chart which shows bull flags and bear flags both.

1) Flags are antitrend corrective patterns...bull flags we get in uptrends ,bear flags in downtrends.

2) Flags are continuation patterns...the main trend continues after the flag is over anf market takes a breakout from the flag.

3) Flags generally come at 50 % mast ie they come at 50 % of the move

4) Flags are shallow anti trend movements which can be drawn in the shape of the flag...hence the name. They are not too steep also they normally will not go below 50 % of the mast ( taking example of bull flag ) here.

5) Flags give a false impression of a trend change but if you remember the above characteristics of the flag, it is possible to judge the flags in real time as they are forming and one can trade the breakouts.....

6) Uptrend continues after bull flags and downtrend continues after the bearish flags.

Trust the above helps understanding flags....

Smart_trade

 

[gsam]

ST, Thank you so much!!! One lingering question. Why is it a flag and not a retracement Sorry if the question is too dumb.

 

[Smart_trade]

ST, Thank you so much!!! One lingering question. Why is it a flag and not a retracement Sorry if the question is too dumb.

Because

1) Flags are shallow movements which normally will not retrace 33 % of the move to call it a retracement. Retracement comes when a move of one degree gets over. Flags most of the time will not retrace more than 15-20 % of the move and the move continues after the flag...so the the flags don't come after the move is over...they come during the move is in progress

2) Flags are bound by upper and lower trendlines to give it a look like a Flag.As the moves are shallow , we may have small pivot breaks but if you consider the bodies of the candles, they will fall within the flag boundries.

Smart_trade

 

[gsam]

Crystal clear. Thanks so much ST.

 

[EagleOne]

ST
I would be grateful if you could clarify a few little things from your excellent posts on Flags:

1. In case of bull flag, does 50% coming-down takes into account the wicks on both ends of the Mast's candle?

2. If yes, do the wicks' size matter? For example, what if they are unusually long on both ends/either end?

3.Does this 50% has tolerence range - ie, say, 47.5% is as OK as 51.8 or 52.5%?

4. What if all the Flag conditions are being fullfilled but the Stochs indicate more than a slight -ve Divergence?

5. Suppose all things being OK, at what point should one enter for long?

6. Are there any other candle formation/Stochs pattern prior to Bull Flag formation that may help a trader to have more odds in favour in case he decides to go for it?

Thanks for your time.

 

[Smart_trade]

ST
I would be grateful if you could clarify a few little things from your excellent posts on Flags:

1. In case of bull flag, does 50% coming-down takes into account the wicks on both ends of the Mast's candle?

2. If yes, do the wicks' size matter? For example, what if they are unusually long on both ends/either end?

3.Does this 50% has tolerence range - ie, say, 47.5% is as OK as 51.8 or 52.5%?

4. What if all the Flag conditions are being fullfilled but the Stochs indicate more than a slight -ve Divergence?

5. Suppose all things being OK, at what point should one enter for long?

6. Are there any other candle formation/Stochs pattern prior to Bull Flag formation that may help a trader to have more odds in favour in case he decides to go for it?

Thanks for your time.

I will answer the above questions in the same serial order :

1) If the wicks are formed because of normal trading then yes they are considered...but if wicks are abnormal and because of some stray trade, better to ignore and concentrate on closes...

2) Wick size does not matter....refer to 1 above...

3) Don't micromanage that much....go with your eye....don't measure the distance with a vernier calliper or a micrometer.... remember that if the downmove is too deep, then the upmove will be a spent force and the market has to do lots off efforts to come up and resume the uptrend....2-5 % +/- is ok....

4) It is always prudent to wait till the flag plays out.....trading in a flag in very frustrating and prone to false starts.

5) Enter long above the lowest pivot high within a flag...once the market comes out of a a flag upper boundry. Once lowest PH is takenout...flag is over.....

6) Flags are the resting patterns where market takes a bit of a rest before resuming its journey.So expect flags after a new move starts and makes some progress...also expect flags when you have a strong thrusting bar or a wide range bar ( WRB )......small PH/PL downmove after a WRB up bar is very likely a flag...

Smart_trade

 

[EagleOne]

Thanks ST (and sorry to bother you during the weekend - again!

BTW you know, being into Physics, I can't help bringing out callipers! Even my eyes scan things using an in-built micrometer!

Anyway, I am posting a 4 hourly chart (The EOD has similar formation) of a good stock that I have been tracking for a while to go long for a short-term investment (unfortunately, it doesn't have FnO, otherwise would have shorted). It has recently touched its lowest point since 3 years. As you can see the flag retraced to almost 50%. The Stochs (14,3,3 for smoothing) in the OS includes 5 bars.

I hope posting this chart will not clutter up your very clean thread, rather it would help many of your students to relate more effectively to the questions I raised and your subsequent answers.

Thanks again

 

[krish4166]

ST,
1)On 30 min tf osc on frdy around 3:00 pm and till today 12:30 pm was in OS more than 5 cndles
2)Tdy osc has entered into OB.
3)tmrow osc if comes out of OB giving a sell sgnl, is it an opportunity to shrt ?
plz explain.

 

[Smart_trade]

ST,
1)On 30 min tf osc on frdy around 3:00 pm and till today 12:30 pm was in OS more than 5 cndles
2)Tdy osc has entered into OB.
3)tmrow osc if comes out of OB giving a sell sgnl, is it an opportunity to shrt ?
plz explain.

Once Stochastics goes into OB zone, its effect of yesterdays and todays OS zone more than 5 candles gets nullified.

In my chart till the last candle the oscillator has still not gone into OB region...but if tomorrow it goes into OB zone, stays there for less than 5 bars and comes out, gives a downclose bar and the low of the downclose bar is cracked....that will be a sell signal with swing high as a stoploss.

Smart_trade

 

[krish4166]

Once Stochastics goes into OB zone, its effect of yesterdays and todays OS zone more than 5 candles gets nullified.

In my chart till the last candle the oscillator has still not gone into OB region...but if tomorrow it goes into OB zone, stays there for less than 5 bars and comes out, gives a downclose bar and the low of the downclose bar is cracked....that will be a sell signal with swing high as a stoploss.

Smart_trade

ST,
on 30 min TF osc which has stayed for more than 5 cndles in OS and if osc goes into OB and if it stays for one candle in OB and comes out OB zone on next candle and still should we consider that OS signal as nullified ? Plz explain and thnks for your reply on my ealier questn