Trading Flags with Binary Options
Hello traders. Welcome to Binary Options Strategy and the tenth module, Trading Binary Options Using Price Action. In this lesson, you will learn how to trade flags. Flags are one of my favorite patterns because of its high accuracy and it’s high in the money percentage. Now this doesn’t mean that every time you trade a flag you are going to have a winning trade. You need to learn how to trade them and you need to learn the exact moment to enter the market.
Now let’s start by defining what a flag is. Flags are very easy to trade and extremely profitable continuation pattern. The pattern is called a flag because you will find it in very trending markets; the move will be the pull and the pattern the actual flag. Whenever you feel like you have missed a move because the market moved sharply to one side, wait for a flag to appear to get on the move. Now this is why I like flags, sometimes you are going to miss trades. This is part of trading and you need to have patience and discipline because if you miss a trade, you are never going to chase the market because you might get in on a corrective move and have a losing trade. What you’re going to do is you’re going to wait for a flag to appear and to break for you to be able to trade the move.
If the market moves sharply to the upside the flag will be a corrective move to the downside. If the market moves sharply to the downside, the flag will be a corrective move to the upside. But you need to be careful because this corrective move has to be uniform. I mean not every single move, not every single corrective move out there is going to be a flag. The flag is a very specific pattern and that you need to be careful not to trade every single corrective move. This means that price has to correct itself inside a small channel to the opposite side of the move. That is what a flag is. If you don’t have a corrective uniform moving side of a channel on the opposite side of the move, you don’t have a flag and you cannot trade that breakout.
Now let me show you an example of what a flag looks like. Now let’s take this upmove for example. You can see that the market moves sharply to the upside, and you are waiting for a flag to appear on a corrective move so you can trade this momentum to the upside. What you need to do is wait for price to start in an upmove of course making lower highs and lower lows. In this case you can see that we are making a lower low, we make a lower high, a lower low again, a lower high again, and a lower low.
Now this is what a flag looks like. You can see that we have the pull right here and then we have a corrective move inside of a channel. Now this is a flag. The moment the flag breaks to the upside, you have a signal to buy call options. Remember, not only you need for the flag to break to the upside, but you need the previous high to break also. So when price breaks with a flag to the upside and it breaks with the previous high, you have a signal to buy call options, and as you can see this options expires in the money. Now this is what a flag looks like.
Of course in a very steep move to the downside, the flag will appear as a corrective channel to the upside and when it breaks to the downside and it breaks with the previous low, we have a signal to buy put options. It’s as simple as that. But you have to be very disciplined because if you don’t have a uniform channel or corrective channel on the opposite side of the move, you don’t have a flag so you cannot trade the breakout. You need a very uniform corrective move for you to be able to trade these continuation pattern.