I don’t see how the flag formation in this article identifies that the market is going to rise and then drop suddenyl:
Consolidation - Trade The Calm, Profit From The Storm
It does not say that. A flag formation is a possible trend CONTINUATION formation signal.
What it possibly signals, in that pictures case, is the continuation of the up trend.
A flag pole is made by a sudden upward thrust in price. The candles inside the double lines/channel is the a actual flag on the pole. (The consolidation or rest)
So, when you see a sudden thrust in price, you then wait for a flag to start forming.
The entry is somwhere above the top of the flagpole. That way if price continues down from the actual flag you never enter.
In my particular strategy the entry would be 10% OF the flagpole above the top of the flagpole. Stop would be 25% OF the flagpole BENEATH ENTRY.
If price breaks out of the flag formation, quite a bit, but does not trip your entry, then the formation become invalid.
A consolodation is a resting period for price. See how price was going upwards. Took a break, consolidated, then continued up wards?
Not sure why Invetopedia didn’t crop that chart before
the downturn as it could be construed as a little confusing.
Take a look at Flag, Pennant (Continuation) - StockCharts.com
for a better example.