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🚩 High Tight Flag - Anatomy
Anatomy of charts. Episode 2
Look ma'! Up in the sky! Its a bird! Its a plane! Its a POWER PLAY!kid from Superman movie
The power play, like many superheroes goes by many names. William O’Neill calls it High Tight Flag. Mark Minervini calls it Power Play. Stockbee calls it Episodic Pivot. Whatever it is called it is a move that catches your eye.
Table of contents
1. Introdcution 2. Psychology of the Crowd 3. Stages ofHigh Tight Flag Formation 4. Key Points about Hight Tight Flag Patterns 5. Chart Pattern and Key Statistics 6. Recognising the High Tight Flag 7. Trading the High Tight Flag 8. Example of a High Tight Flag 9. Conclusiong 10. Key Take-away
The High Tight Flag pattern is a powerful chart formation that catches the eye of traders and investors alike. The power play, like many superheroes known by many names. , such as the Power Play and Episodic Pivot, this pattern is characterized by a substantial price rise followed by a shallow correction. In this article, we'll take a closer look at the psychology of the crowd and the three stages of a High Tight Flag formation, as well as key points to consider when trading this pattern. The formation was popularized by William J. O’Neil in his book, How to Make Money in Stocks (McGraw-Hill, 1988).
👥 Psychology of the Crowd
The shallow subsequent selling after a High Tight Flag formation tells us that people are not interested in selling and that institutions are likely the ones piling into the stock. This is due to the psychology of the crowd, which causes a momentum effect that propels the stock's price upwards.
📈 Stages of a High Tight Flag Formation
A High Tight Flag formation consists of three stages:
Stage 1: Consolidation - the period prior to the explosive move
Stage 2: Pole - the explosive move after the consolidation
Stage 3: Flag - the contraction, when the stock catches its breath before continuing its journey up
🚩 Key Points about High Tight Flag Patterns
The stock has made an advance of +100% in between 20 - 40 days
The stock then corrects less than 20% in between 5-25 days
Buy point is the High of the flag +10cents.
📊 Chart Patterns and Performance Statistics
Success rate is very high: High Tight Flag patterns are some of the most bullish chart patterns you can find. This pattern's performance statistics are impressive, with a success rate of approximately 82% and a price rise that can double in as little as two months. The throwback rate of the High Tight Flag is also high around 67%. For those of you who want to understand what a throwback rate, have a read at this article.
Throwback and failure rate: The statistical analysis of these flags fascinating, as the numbers are quite impressive. For example, in a bull market, the average rise is 69%, and the patterns in both bull and bear markets have a 0% break-even failure rate. While it's true that some patterns do fail, only 5 out of 307 have failed to climb at least 10%, and none have failed to climb at least 5%. These statistics are very promising and make High Tight Flag an excellent chart pattern to explore.
Summary of Statistics
Success rate: 82% meeting the price target (price target explained below)
Average rise: 69% in a bull market and 42% in a bear market
Throwback rate: 67%
Break-even failure rate: 0%
👀 Recognizing the High Tight Flag Pattern
The High Tight Flag pattern is characterized by a tight flag, where the price trends downward in a consolidation pattern. This pattern occurs after a substantial price rise, and the flag's pole should be at least four weeks in length. Additionally, the stock's volume should be high during the pole formation but low during the consolidation.
Substantial Price Rise
The initial step in identifying an High Tight Flag is to look for a short, quick rise, in which the price nearly doubles in two months or less. The price can move up more than that, and the rise need not take place from a flat base. To identify the trend start, a doubling of the price in two months is visually examined and a computer is used to determine when the trend started
After selecting the stocks on a price-rise basis, the next step is to locate the nearest consolidation area. The duration of the consolidation or how far the flag descended before turning upward does not matter. The consolidation area should be about double the price of the prior 2-month low, and should be plainly visible to the casual observer.
Receding Volume trend
Flags with a receding volume trend tend to outperform those without. However, it is not advisable to ignore an HTF simply because the volume is rising. Instead, it is important to recognize that its performance may suffer.
💸Trading the High Tight Flag Pattern
Buy point: The buy point of the High Tight Flag pattern is the highest high of the flag + 10 cents. This means that you should wait for the price to rise above the flag's high point and then buy the stock once it has risen by 10 cents. Once you've purchased the stock, place a stop loss at the low of the consolidation period.
Give them room: A general rule to High Tight Flags is not to choke them. They are very powerful and could be volatile around the base. This does not mean to not manage risk, rather but play for the longer term when adjusting stop-losses.
Price target: It is also a common wisdom to have a price target based on the structure of the base. In the High Tight Flag case, we have a common price target of half of the pole’s height. This means that if the High Tight Flag has a pole of 100%, then a price target of 50% is common. This is the price target that has been reached over 82% of the time.
📊 Example of High Tight Flag Pattern
Let's take a look at an example of a High Tight Flag pattern to better understand how it works.
QCOM from October 1990 to Jan 2000 shows a classic Power Play move.
✅Consolidation: small cup and handle in October 1999.
✅Pole: +114% in 28 days
✅Flag: 25 days no more than 25%
✅Volume: Drying up during flag phase, breaks out on above average volume.
The High Tight Flag pattern is a rare but powerful chart formation that can help traders and investors achieve substantial gains in a short amount of time. By understanding the psychology of the crowd, the three stages of a High Tight Flag formation, and key points to consider when trading this pattern, you can increase your chances of success in the stock market. Remember to always do your research and analyze the charts before making any trades.
Word of caution
When it comes to trading the High Tight Flag pattern, it's important to have a good understanding of chart patterns and technical analysis. By using technical indicators and chart patterns, you can identify potential trading opportunities and make informed decisions. Use the template from the beginning of the article to make sure you are stacking chances in your favour.
🚩 Key Takeaways
The High Tight Flag pattern is a rare but powerful chart formation that can help traders and investors achieve substantial gains in a short amount of time.
Understanding the psychology of the crowd, the three stages of a High Tight Flag formation, and key points to consider when trading this pattern can increase your chances of success in the stock market.
Technical analysis and chart patterns can help you identify potential trading opportunities and make informed decisions. Use the template.
The success rate of a High Tight Flag is 82% in a Bull market of reaching 50% of the poles length
Wait for the stock to rise above the flag's high point
Buy the stock once it has risen by 10 cents
Place a stop loss at the low of the consolidation period