The flag formation is my favourite setup to look for before entering into any trade whether short term or long term. It is a really good indication of market momentum and also of where price is likely to head – in the direction the flag is pointing.
The theory behind this is simple : Every EZ box or DZ box and Directional Diamond is a support (if its under current price) or resistance (if its above current price). If there are a lot of boxes and diamonds above current price, that means there is a lot of resistance and price will be finding it hard to go there. If there are a lot of boxes and diamonds below current price, that means there is a lot of support and price will find it very difficult to go down.
The goal, then, for whichever forex scalping strategy you choose, is to trade in the direction of the flag every day. So if we see in the example on my our left, NZDUSD and AUDUSD has a flag formation pointing down, we will wait for SELLING opportunities because there is just so much downward momentum. The same goes for our example on the right for USDJPY and EURJPY, we will only look for BUYING opportunities because the flag formation is pointing up and hence, there is a lot of upward momentum.
So the moment you sit in front of your computer and turn on your MT4’s TFA Sniper, take a look at the main currency pairs and look out for any flag formations – they are simply the best. From there, you can plan the trades you want to take and the Risk : Reward you would like to allocate to your automated trades. When there’s a good flag formation in my favour, I would usually have a higher reward target in the direction of the flag formation for automated and manual trades (eg. bearish flag formation means 1:3 R:R for short trades).
On top of that, if there is a bearish flag formation, I would be on the look out for short trades even on my manual trading strategies throughout the day. Same goes for a bullish flag formation – I would be looking for long trades throughout the day.
If there is neither a bullish/bearish flag formation, I would adjust my R:R on my automated trades to 1:1 and exercise caution on my manual trades. Along these lines, sometimes the Flag Formation can be very tricky as although the top right corner reading shows a clear flag formation strength, the TFA Sniper’s short term momentum can be starting to show potential reversals in place. An example of this is the EURUSD and USDCHF matrix below. You can see that even though EURUSD has a bearish Flag Formation, the early momentum is starting to turn bullish. In such cases, it is best to exercise caution. The same goes for the bullish Flag Formation on USDCHF starting to turn bearish.
Now that you know the power of trading in the direction indicated by the market momentum shown on the flag formation and how it helps you get into a trade that is in the direction of the currency’s momentum, you can continue learning more about the TFA Sniper in detail.
Be sure to catch the video explanation below too on the TFA Sniper’s Flag Formation!