Another problem with flags and pennants is that sometimes they are very short-term, and finish even before you will be able to recognize them. Usual the target of a potential move after the pattern equals the move before the pattern. Look at chart #2 on the flag in the circle – see, market shows the same move up after it has been formed, as the move before it has been formed and the previous flag. Usually, this previous move before the flag or pennant is called the “mast” or flagpole. Although this is a classical approach, you may use other target, for instance, based on Fib extensions on this swing. And simultaneously use flags or pennants for entering. As with other patterns, flags and pennants could become an object of faked breakouts – look at chart #1 in the circle. If you’ve entered and your stop has been triggered, but then market returns back in the body of flag or pennant – you will have to enter again. Still, this is not as painful as trading wider patterns, because the range of pennants and flags is very small. Hence, your stop loss will be placed tight, and even if you will have to enter again, this will not be so harmful to you. In the case of a fake breakout, you have to place your stop beyond it during the second entry. On chart #1 you should buy at the bar that returns back into pennant with a stop loss below the low in the circle. Here is how it looks like during bear trend: Chart #3 CHF/USD 60-min. Flag. P.S. This lesson was written by Sive Morten, who has been working for a large European Bank since April of 2000, and is currently a supervisor of the bank's risk assessment department. Sive's knowledge of forex market and banking industry is vast and quite complete. If you have any specific questions about forex, banking industry, or any other financial instruments, please post them on the next page and Sive should answer soon. Note: FPA ranks are earned in the battles against scam, not in the classroom.