Custom Candlestick Pattern for Finding Flags | Trading Flag Patterns | Ben Watson | 9-24-24
Education
Introduction
Good morning and welcome to today's webcast on trading flag patterns! My name is Ben Watson, and I’m an education coach and Senior Manager at Charles Schwab. Joining me in the chat today is my good friend and fellow education coach, Connie Hill, who has over 20 years of experience in the financial markets. She will be assisting with questions related to this topic and beyond.
In this session, we will delve deeper into flag patterns, extending our discussion from last week’s Think Script webcast, where I showed you how to create a visual tool to identify flag patterns on charts. We’ll use the tools available on the Thinkorswim platform to develop indicators or scans to locate these flag patterns efficiently.
Housekeeping Items
Before we proceed, please remember that everything shared in this session is for illustrative and educational purposes only and should not be construed as a recommendation for any particular strategy or security. Options carry a high level of risk and are not suitable for all investors. Ensure you are familiar with the associated risks of trading options before entering any transactions.
Understanding Flag Patterns
Today, we will focus primarily on daily bull flag patterns with a short-term perspective. For those who may be new to flag patterns, a bull flag typically consists of:
- A significant upward price trend (the "flagpole").
- A subsequent pullback lasting anywhere from 1 to 7 days.
- An entry point when the price breaks above the resistance level established during the pullback.
Bear flags generally form in a downward trend, so the principles are similar but inverted.
For further information, I encourage those unfamiliar with flag patterns to refer to the trading flag patterns webcast playlist, where foundational concepts are explained.
Current Market Overview
Before we explore individual stocks, let’s take a brief look at the current market trends. Observations indicate:
- The S&P 500 is exhibiting a potential bull flag.
- The NASDAQ is performing similarly.
- The Russell 2000 may provide a clearer illustration of a bull flag formation, looking for upward momentum.
Identifying Bull Flags
To identify bull flags on individual stocks, we will utilize the Thinkorswim platform. First, let’s examine a stock chart and look for potential flags.
By going to the “Patterns” tab on Thinkorswim, we can add predefined patterns to our chart. I will outline a method to create a custom candlestick pattern specifically for flag identification by using a combination of specific candle behaviors.
Creating the Custom Candlestick Pattern
- Select the Patterns Tab: Begin by going to the Patterns tab and choose “select patterns.”
- Add a Flag Pattern: Start with a flag pattern and make adjustments as necessary.
- Create a Custom Pattern: Use the candlestick pattern editor to define conditions for identifying bull flags:
- Define an ascending trend of at least 7 candles.
- Identify down candles for the pullback phase, ensuring these candles have:
- Close prices lower than the previous down candle's low.
- A subsequent up candle that provides a close above the established high.
This gives us a robust definition for identifying bull flags visually on our charts.
Using the Scans to Identify Stocks
With our custom flag identifier created, we can now go to the scan tab to find stocks that meet our specified criteria, including:
- Stocks within the S&P 500.
- Minimum volume of 500,000 shares daily.
- Price ranges under $ 200.
Add the user-defined filter to search for the flag pattern within the last three bars to see which stocks meet our conditions.
Example Stock Analysis
Let's look at some specific stocks identified through our scan. We will take a closer look at a couple of examples to evaluate their patterns and potential trading opportunities, optimizing our entry based on the established resistance point.
Conclusion and Next Steps
In summary, you now have a custom method to identify bull flags through candlestick patterns on the Thinkorswim platform, complete with a practical guide for scanning for these patterns. The scanner results can help you identify actionable stocks, facilitating informed trading decisions.
Feel free to reach out if you have any questions or need further clarification, and thank you for joining me today.
Keywords
- Bull flag patterns
- Candlestick patterns
- Thinkorswim platform
- Custom indicator
- Trading strategy
- Market trends
- S&P 500
- Stock scanning
FAQ
Q1: What is a bull flag pattern?
A: A bull flag pattern is a technical indicator that shows a brief pullback in a bullish trend before a continuation of upward movement.
Q2: How can I create a custom candlestick pattern on Thinkorswim?
A: By using the candlestick pattern editor, you can define conditions like an ascending trend followed by down candles and implement custom arrows to visually identify signals.
Q3: Can I use the Thinkorswim scanner to find bull flags?
A: Yes, you can add a custom pattern filter to the stock scanner to identify bull flags in specific stocks meeting your criteria.
Q4: Why do I need to understand flag patterns?
A: Understanding flag patterns can help you make informed trading decisions based on momentum and price action, potentially increasing your trading success.