If you’ve ever wanted an easy, three-click method for price projection targets from what you perceive to be bull or bear flag set-ups, check out this simple method using traditional Fibonacci tools in TradeStation (similar in other charting packages with the Fibonacci Projection Tool).

Let’s not discuss Fibonacci, but just the “100% Equal/Measured Move” of a prior impulse.  Flags target an ‘equal move’ of the pole, once a retracement has formed.  Search this blog for “Bull and Bear Flags” for more information, or check out any reference on bull/bear flags.

The Flag forms a clean retracement against an intial impulse (usually a sharp price swing) which often retraces to a key moving average or perhaps the 50% Fibonacci retracement.  Once you believe that price has broken OUT of the mini-channel that a flag forms, THEN it’s time to enter and project a price target for how far the move is expected to travel (for purposes of risk/reward and trade management).

Here’s how I do it in TradeStation:

Once you identify a possible flag breakout (we’ll discuss bull flags here), then click on the “Fibonacci Price Extension” lines under the “Drawing” tab.

Your cursor will change to the extension tool, and your objective is to click on the BOTTOM of the Flag Pole, then click at the TOP of the Flag Pole (the “Impulse Swing” move), and finally make your third click at the BOTTOM of the perceived flag.

Keep in mind you’ll need to do this AFTER price has broken above the trendline to the upside so that you’ll have a confirmed break to the upside.  Failing to wait for the break could cause a premature projection, and the price may travel a little lower than where your projection started… but if this happens, simply re-draw the Projection.

The program then draws multiple lines on the graph, but you’ll need to cull it down a bit for clarity.  Double-Click on the Fibonacci lines drawn and open up the Editor tool for the Price Extension.

Uncheck everything EXCEPT fot the 100% retracement line (this is really the most important step).

After this, you can change the color or thickness of the lines - which is of secondary importance.  Here is a screencap of what this looks like:

Once you make these changes, you’ll wind up with a grid that only projects the 100% projection, which is an exact measured move of the “Pole” that begins (is added) at the bottom of the Flag you chose.

I’ve cheated a bit and given you a complete projection, and sometimes you’ll need to drag your chart (scale) to see the actual projection.  Click for larger image:

TradeStation gives you the EXACT price of the target, which will help give you an exact idea in mind and will help in Risk/Reward calculations (as your stop will be an exact number as well - placed just beneath the lower-trendline of the flag).

The Blue Line (100%) was drawn by TradeStation, and what you’ll find more times than not is that price at least pauses and sometimes totally reverses at the 100% projection, or exact Measured Move of prior impulses.  Whatever the reason (those are all debatable), it sets up an excellent trading opportunity with low risk (tight stop) and larger target (100% Projection).

Try it out and see what additional insights you can find with this very useful tool.

Copyright and Published by Corey Rosenbloom of Afraid to Trade.
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