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TOPIC: Flag Limits

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More often, price acts as a consolidation range than a movement trend. Up until
recently, I used to wait for the price to break this range and retrace; then I entered
the trade. But these ranges are tradeable; so why not make a profit?
A few months ago, IF posted a picture of a BEFL and said that the price should
fluctuate within that range. He mentioned the DBD in the downmove. I said that I
had seen a lot of them, but what should we call them?
He said we don’t really have a name for them; they’re just decision points (DP).
I told him I think I found me a new homework to do. I’m going to find a lot of them
and report back.
I think this is that report now.
So, this is a small article on what a flag limit is –which is a concept that’s being
widely used recently. So this article is helpful to avoid confusion.
As IF already mentioned: “if there is a zone of indecision, it will reveal itself as a
flag. The limit of this flag will then become a new zone.”
He also said that “flag limit” indicates the end of the momentum.
All credit in this article goes to IF who brought this subject to my attention.

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In the following, there are some graphical presentations to simplify the subject
before we get into the real life examples:

When price retraces to it, it

will decide before The area inside the circle is a flag
continuing downward. limit and usually reacts to the
first time back (FTB).

Price returns and is rejected in the first retrace.

We had Base or SR in the

past

The price is then trapped on

the two sides of the red circle;
Flag limit which forms the flag limit until
one of them is consumed and
the price exits the flag limit.

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And in the following, we see some real life examples:

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Naturally, some are messier than others. The trick is to take the best and clearest one
of them into consideration. The whole flag area has a lot more roles to play than the
FTB alone. It’s your job –if you’d like– to take these basic concepts and expand
them. I am not going to mention any more roles and touches here; because I know
that will only confuse you and makes you miss the basic point. The discussion will
continue in your own weblogs. If you have any questions, post them in the school
room.

Exercises:
Find 20 flag limits that fluctuated on return.
Find 20 flag limits that created price bounce on several returns. Check the PA.
Find 20 flag limits that have failed to hold the price on the first and subsequent price
returns. Note the PA and specify where the price has gone after that.

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

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It is asked of Mr. Harry if there is a difference between a FTR and a FTB. Isn’t the
only difference between them the fact that FTB does not quite reach the flag limit
area?
In reply, he writes:
FTB: first time back (to anything that was traded).
FTR: failure to return; which has very specific conditions to identify.

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
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Following that, Mr. Harry says:
Well, there are two important points in the subject of flag limits:
As IF mentioned: “They are a sign that the momentum is over”. Also, we are looking
to see them in the original significant zones, like the clear and obvious SRs. Why?
Because after the pole, the price tries to go back inside the zone and fails; so a
decision is made, and that is our flag limit. Therefore, in the first price return from
where the decision has been made recently, the price can be expected to react to that
area. The area of the flag limit might react to the price more than once; and that is

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valid, unless it breaks. I do not suggest trading it on the second time. After the flag
limit is engulfed, the price is free to return to the base of the pole.

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
Mr. Harry says:
In flags, I like to trade the FTB, and also the flag break after price retraces to it (after
it fills the pole base).
There are two things required to trade the FL engulf:
- The flag point is more of a reaction to something significant.
- Also, it gives a clear place –like a FTR or something like that– to base a trade
on. SUNNY and PEDINI have had great successes in this case in their
journals. They are more successful in this field.

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IF says:
About price caps, if it were me, I would say: “Look at the RBD/DBR fakeouts”; did
they spark?

LES_PAUL:
Are you talking about this?

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IF’s response:

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
From Mr. Harry’s point of view, flag is a collection/distribution zone: distributing
orders to retrace and collecting orders to continue the trend.

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
From Mr. Harry’s point of view, the flag limit is a FTR; but all FTRs are not flag
limits.

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
From Harry’s point of view, FTBs that occur immediately are actually the polebacks
in the trend; and in case a long time passes, the trend may change and engulf might
occur.

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
DT gets involved in this topic too:

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Dear Mr. PEDINI:

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“The End”

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