Constructing flag and pennant rules from pole to exit

From sketch to construction

The historical workflow dates the compacting rest from a swing, sizes the prior thrust as a pole, and only then attaches slope, volume, confirmation, and timed-exit tests. Those steps define the flag or pennant as a written rule rather than a freehand sketch.

Editorial reading: treat the pattern as a construction problem. Once the rest is dated and the pole is sized, later gates can invalidate the idea before any target is allowed.

Dating the rest

Flag-duration is the number of bars from the latest qualifying swing that defines the compacting rest after the pole. In this construction the latest swing is a 17-percent zigzag swing.

The duration is accepted only when that count is greater than 2 bars and less than 21 bars.

Sizing the pole and writing the objective

Pole-base is the lookback swing low used as the starting level of the prior thrust. Pole-top is the swing high used as the peak of that prior thrust.

Pole-height is constructed as the percentage rise from pole-base to pole-top. That percentage is used later to scale the objective.

The coded objective is 1.94 times pole-height raised to the power 0.724. The matching target price applies that percentage to the current close. The pole-scaled-target is therefore an objective written as a function of pole-height rather than a fixed multiple of the rest.

Slope, volume-decay, and volatility-contraction

Long-entry construction requires a 13-bar pre-flag-slope above 2.2 percent. Pre-flag-slope is a regression slope taken on the thrust that precedes the rest. It must stay steep enough to count as a pole.

The same entry construction requires a flag-window-slope below 0.2 percent and a flag-window-slope floor of -1.2. Flag-window-slope is a regression slope taken across the rest itself. It must stay compact rather than trend strongly.

Volume over the flag window must slope below -2 percent. That downward slope is volume-decay, used as evidence that the pause is contracting. The slope of price standard deviation over the flag-duration must be negative. That falling dispersion is volatility-contraction, used as evidence that the pause is tightening.

Confirmation gates

Confirmation gates require a 20-period stochastic above 55, a 10-period ADX above 30, a cutoff-filtered money-flow reading above 10, a volume-flow-measure reading above -3, and a close that is higher than both the prior close and the current open.

How the volume-flow-measure is built

The volume-flow-measure is a long-lookback, cutoff-filtered signed-volume series used as a confirmation gate, then lightly smoothed.

The series caps volume at 2.5 times its average, signs the capped volume by whether typical-price change exceeds a 0.2-times-volatility cutoff, sums that signed volume over a user-set lookback defaulting to 130 bars, and then applies a 3-period exponential smooth.

Five constructed exits

Exits are constructed as a set of five tests.

The first test is the pole-scaled-target. The second is a flag-window-low-stop: an invalidation level set from the lowest close of the rest, shifted to the entry bar, and written here as a break of the flag-window low.

The third is an inactivity-exit, a time-and-progress rule that closes the idea after more than 14 bars if open gain is under one-quarter of pole-height. The fourth is a trailing close after more than 3 bars if price is below 90 percent of the 4-bar high. The fifth is a hard time close after more than 24 bars.

What the companion scan reports

The companion scan is specified to report the pre-breakout close, pole-top, pole-base, pole-height percentage, target percentage, and target price. All of those fields are on a closing-price basis. The scan uses the same filter as the long-entry rule.

Editorial reading of the workflow

Editorial comment: the archive facts describe a historical construction order, not a claim about present-day use. After flag-duration, pole-height, slope, volume, confirmation, and the five exits are written down, the flag or pennant can fail before the pole-scaled-target is allowed.