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Learning Points

Now you know why I hunt trending stocks that form flag patterns. If you want to be consistent with your trading, then most of the time you’ll do better by trading in the direction of the trend. The key is how to find trending stocks and flag patterns at will. The problem many people have with trading a winning position is that they’re scared they won’t find one ever again. So they stay in too long and eventually end up forfeiting their profits. Does that sound at all familiar?

When the markets are generally trending down, there are likely to be fewer uptrending stocks and vice versa. Typically, whatever the general trend of the market, you will want to trade in the same direction until the trendline is broken. By trading in this way, you’re being responsive to a potential change in direction, but you’re not trading so tight that you’d be whipsawed out of a profitable position.

You’ve also learned in this chapter how easy it is to enter and manage trades with these patterns. That’s the whole reason why I use them. My trading psychology is always crystal clear, and there’s no room to maneuver and kid myself. For that reason alone, trading in this way is invaluable to me—and can be for you too. The bonus with these patterns is that they often experience explosive moves in the direction of the trend. Your trade is only triggered when the flag pattern is breached in the direction of the prevailing dominant trend. So if there is a reversal, you’re not triggered into the trade, and if you’re not in the trade to begin with, you can’t lose money. This is another great reason to trade these patterns.

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