The High and Tight Flag is a specialized Bullish Continuation price pattern.
Set up restrictions for the High and Tight means this trade does not happen often but when it presents… it offers a high reward to risk ratio. The pattern is seen as viable with any instrument and using any time frame.
As with all Flags the High & Tight has 3 recognizable sections to the formation: the impulse Pole, the consolidation Flag, and the Follow Through or potential reward.
The Pole of the High and Tight is the most noteworthy and easily recognizable condition for the pattern set up. The impulse move that creates the ‘Pole’ should be of an unusually large size in both volume and price action. It needs to be stressed that a trader should determine this definition to mean an aggressive, thrusting, larger than normal, surge in both price and volume happening in a relatively short period of time.
The retrace consolidation or Flag portion is merely a brief pause, with a very ‘tight’ price structure and typically lower volatility as the bulls do not give much back from their aggressive gain. While flags typically have a rectangular shape during this consolidation phase; it is important to note that, this specialized flag has no real restriction on ‘shape’. The real issue & concept here is the ‘tight’ portion of the Flag needs to be seen with the bulls holding an aggressive new higher support line on price.
The follow through comes with a new breakout of the immediate resistance and again should coincide with a new surge in both volume and price. This follow through confirms the bullish continuation pattern.
This pattern offers clear guidelines for traders to consider for risk to reward parameters: stop placement, entries, and targets based on the structure itself. Using the Pole, traders can calculate a ‘measured move’ from the swing low to the swing high of the price move that created the Pole.
Pole height x 30-35% = maximum price retrace allowed guideline for both stop placement & possible entry.
Pole height x 50% = further target added to the new breakout price of the immediate resistance or Pole Tip.
This additional target will complete this highly reliable bullish continuation pattern.