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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski's High and Tight Flags

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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 08/29/2014
17,098 18.88 0.1%
8,408 2.64 0.0%
564 4.26 0.8%
4,580 22.58 0.5%
2,003 6.63 0.3%
YTD
3.1%
13.6%
15.0%
9.7%
8.4%
Tom's Targets    Overview: 08/14/2014
17,300 or 16,700 by 09/15/2014
8,700 or 8,000 by 09/01/2014
575 or 540 by 09/15/2014
4,600 or 4,300 by 09/01/2014
2,050 or 1,950 by 09/15/2014

Written and copyright © 2009-2014 by Thomas N. Bulkowski. All rights reserved.

For more information on this pattern, read Encyclopedia of Chart Patterns, Second Edition, pictured on the right, pages 350 to 361. That chapter gives a complete review of the chart pattern, including tour, identification guidelines, focus on failures, performance statistics, trading tactics, and sample trade. Below is just a sliver of the information contained in the book.

High and tight flags are the best performing chart pattern in both bull and bear markets. Even though the break even failure rate is 0%, this pattern does fail. Don't count on making a 69% average rise either. That's an average of hundreds of perfectly traded trades, something no one can do.

A high and tight flag
High and Tight Flag

 

Important Bull Market Results for High and Tight Flags

Overall performance rank (1 is best): 1 out of 23
Break even failure rate: 0%*
Average rise: 69%
Throwback rate: 54%
Percentage meeting price target: 90%

* None of the 253 patterns I looked at failed to rise less than 5%. However, this pattern does fail, I just didn't find any when I did the statistical analysis.

The above numbers are based on hundreds of perfect trades. See the glossary for definitions.

High and Tight Flag Identification Guidelines

CharacteristicDiscussion
Price trendUpward leading to the pattern. The price should rise by at least 90% in less than 2 months.
ShapeA consolidation pattern forms after price doubles. It usually doesn't look like a flag or pennant, just a pause in the price rise.
VolumeRecedes for best performance
ConfirmationThe pattern confirms as valid when price closes above the highest peak in the pattern.

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High and Tight Flag Trading Tips

Trading TacticExplanation
Measure ruleCompute the height from the start of the price swing (point A in the measure rule figure to the right) to the end of the price swing (B) and then take half of it. Add it to the bottom of the flag (C) to get the target (D).
BreakoutOnly buy when price closes above the highest peak in the chart pattern (including the flagpole). That is point B in the Measure Rule figure to the right. Buying sooner risks price never confirming the pattern (in other words, price drops or moves horizontally for months). And yes, I know this is different than what I wrote in my book. HTFs fail too often when using a flag trendline break. Instead, place a buy stop above the highest high in the chart pattern.
Tight patternsTrade tight flags, not loose ones. Tight flags perform better than loose ones. A loose flag is one in which price meanders, pokes outside the trendline boundary, contains white space, or looks jagged. See the figure to the right.
TrendsAn intermediate-term (3 to 6 months) drop leading to the start of the price upswing results in the best post breakout performance.
RetraceKeep the flag retrace (see BC in the Measure Rule figure to the upper right) of the prior up move (AB) less than the 36% median retrace for the best performance.
SlopePrice trends of 45 degrees or so in the flagpole mean a better post breakout rise than ones that go nearly vertical leading to the flag.
WidthFlags (excluding the flagpole) less than the median 15 days wide tend to do better post breakout. This is the horizontal distance from B to C in the Measure Rule figure to the upper right.
TrendlineFlags with a down-sloping top trendline tend to outperform.
Trendline TradeFor steep price trends, use a volatility stop and draw a trendline beneath price. If price closes below the trendline, then consider selling. For an example, look at IIIN from January to April 2006. The HTF starts in January and price more than doubles in less than 2 months, eventually rounding over at the top.
High and tight flag chart pattern measure rule
The Measure Rule

Tight versus loose flag

Tight v. Loose

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High and Tight Flag Example

High and tight flag chart pattern example

The above figure shows an example of a high and tight flag chart pattern. Price begins the rise in October at 9.36 and rises to 17.80, a climb of 90% in less than 2 months. Then price moves sideways, forming an ascending triangle. When the breakout occurs, it confirms the high and tight flag chart pattern as a valid one and price resumes the up trend. Price tops out at 23.72 less than 2 months later, a rise of 33%.

-- Thomas Bulkowski

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Other High and Tight Flag Examples

See Also

Written and copyright © 2009-2014 by Thomas N. Bulkowski. All rights reserved. 24 hours in a day; 24 beers in a case. Coincidence?