According to Thomas Bulkowski, one of the most profitable technical patterns is the high and tight flag pattern, breaking higher. According to Bulkowski, when properly recognized, it can reach targets up to 90% of the time. So, here is what you need to look for to recognize them. 
 

Recognizing the pattern

Here are the steps to recognizing the pattern

1. First of all, you need to witness a steep and sharp price trend. (ideally over 90% gain)
2. Ideally, this price move should be around 45 degrees
3. You then need to see the price form a small channel that resembles a ‘flag’ pattern. 
4. The best performance comes when the flag slopes away from the preceding trend
5. Flag formations should form over a few short days – ideally less than 15 days
6. Use the measured rule to aim for your target. So, the height of the move preceding the ‘flag’ formation is the measured target from the breakout of the pattern. 
7. Use a trailing stop to lock in profits
8. The trade entry is simply the break of the pattern and stops can be placed on the other side of the pattern 

Here is a look at what the Flag pattern should look like 

USDJPY flag pattern
 

Why the pattern works

The logic 

The most likely reason the pattern works is that by definition you are already entering a trending market. That is a prerequisite for finding the pattern. This pushes the odds in your favor and, when combined with a trailing stop, you can see why some traders focus on trading the flag and pennant pattern in isolation. This pattern is probably easiest to use when you have fundamental reasons to see a market rapidly rise higher.

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