Price channel break and a trading flag

For swing trading I use price channel breaks and flags for both my buy and sell signals. A channel price break signifies a change in trend. A buy occurs when prices are dropping in a down trending channel and then something happens causing the price to break out above the channel line. Below, I have an example of a price channel break and a trading flag which is a buy.

Price extremes form a shallow up trend channel after a large spike up at the beginning of this chart. This uptrend channel is shown in blue. Up trend channels are drawn by placing a rising line between the two highest highs and then drawing a parallel line from the lowest price that occurs between them. A price drop below that parallel line is an indication that the trend is ending. Often, a certain percentage below that channel is used as a stop loss price where your stock would sell to limit the amount of profit you give back.

Once that channel is broken, and two down sloping lows form on the chart, a down trend channel can be drawn. This channel is in red and is drawn with a line between the two lows and a parallel line drawn from the highest price between those lows. Prices broke above the channel three times before giving up and heading down. After an up channel break down, I ignore these first price break outs from the new down trend because they are only testing the break down. There is a time when they are buys, but it is rare and not the subject of this post.

After prices break lower again, a new, wider, and more sustainable down trend channel has formed. (shown in green) This is the one we want to see prices break out of for a buy and, after several days, that is what happens. After such a break out, a flag nearly always forms. The flag, shown in orange, is ideal for end-of-day trading because it rests right on top of the green channel and rests on the support of an old low, in red. This flag is what this blog and my website are named for. A buy at the end of the flag day is an excellent entry point and the next morning prices gap higher and head up.
There are times when the flag straddles the down trend line, but still rests on an old high or low, and other times when the flag doesn't form until after a very large rise. These can still be bought if they rest on support.
This type of buy has very limited risk because a stop can be placed just under the old low, often risking less than one percent on the trade.
Happy trading.