As of 04/18/2024
Indus: 37,775 +22.07 +0.1%
Trans: 14,947 -39.62 -0.3%
Utils: 860 +6.95 +0.8%
Nasdaq: 15,602 -81.87 -0.5%
S&P 500: 5,011 -11.09 -0.2%
|
YTD
+0.2%
-6.0%
-2.4%
+3.9%
+5.1%
|
 39,800 or 37,150 by 05/01/202416,200 or 15,000 by 05/01/2024885 or 850 by 05/01/202416,700 or 15,800 by 05/01/20245,250 or 5,025 by 05/01/2024 |
As of 04/18/2024
Indus: 37,775 +22.07 +0.1%
Trans: 14,947 -39.62 -0.3%
Utils: 860 +6.95 +0.8%
Nasdaq: 15,602 -81.87 -0.5%
S&P 500: 5,011 -11.09 -0.2%
|
YTD
+0.2%
-6.0%
-2.4%
+3.9%
+5.1%
| |
|
39,800 or 37,150 by 05/01/202416,200 or 15,000 by 05/01/2024885 or 850 by 05/01/202416,700 or 15,800 by 05/01/20245,250 or 5,025 by 05/01/2024 | ||
Before reading this article, I've updated the performance of the high and tight flag. It's not nearly as good as the below suggests, ranking 43 out of 56, where 1 is the best performing. See time performance.
When I wrote the book,
Encyclopedia of Chart Patterns Second Edition
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If you are not familiar with the high and tight flag, then the link provides a good overview.
This study takes a closer look at the high and tight flag, to see what attributes result in the best performance and to update the statistics.
When I wrote my Encyclopedia of Chart Patterns book, I looked at each pattern multiple times to not only catalog its features, but to make sure it was a valid pattern. This study uses an automated approach. I consider it inferior to manually qualifying each pattern, but you can get substantially more samples. With careful programming, the results can be equally rewarding.
Here is how I conducted the study.
All of that may sound complicated, but if you want to reproduce these results, it is best to know the complete story.
The results are manifold, but here are a few quick ones.
The reason I started this study was to determine if the slope of price trending into the start of the high and tight flag had any bearing on the outcome. I contended that steep downtrends (like during the 2008 bear market) produced high and tight flags that failed. Here are the performance results.
| Slope | 1 month slope | 2 month slope |
| Up | 28% | 30% |
| Down | 26% | 24% |
| Steep up | 26% | 28% |
| Shallow up | 34% | 36% |
| Steep down | 23% | 22% |
| Shallow down | 35% | 27% |
In words, price that trended upward leading to the start of the high and tight flag, whether over one or two months, resulted in better performance than price trending downward.
Patterns with shallow rises leading to the start of a high and tight flag resulted in better post breakout performance.
I used a slope range between -0.1 and +0.1 and found that patterns with those slope values had gains averaging 33%. Patterns outside that range had gains averaging 24%. In other words, a flat base (or nearly so) leading to the start of the high and tight flag is a good thing.
The chart makes the slope discussion clear. The red line is the high and tight flag, where price zips upward at least 90% in two months or less. The blue line is the inbound trend leading to the start of the hight and tight flag.
In the upper left pane, we see a shallow inbound price trend leading to the start of the high and tight flag. If the slope lasts 1 month, then the high and tight flag tends to perform the best of the four combinations (an average rise of 35%, from the above table). If the slope lasts more than a month, performance is not as good (27% post breakout rise).
The pane in the lower left quadrant shows the most likely trend, that of price moving upward but not too steeply before increasing in slope during the high and tight flag. The shallow uptrend gives the second best performance if the trend is one-month long (34%) and it gives the best performance if it is two months long (36%). It is the preferred setup.
The two panes on the right side of the figure show the worst combinations, that of a steep inbound up or down trend. You should avoid trading high and tight flags with a steep drop or steep rise leading to the start of the high and tight flag. Of the two, the steep downtrend gives the worst performance (an average rise of 22% after the high and tight flag).
Failure rate is another term for awful performance. I mentioned in the quick results that 14% of patterns failed to find an upward breakout. For those that did find an upward breakout, 19% failed to climb at least 5%. That gives a combined failure rate of 33%. Clearly waiting for a breakout cuts your chances of having a failure in half. The following table shows a frequency distribution of failures.
| Failure Bins: | 5% | 10% | 15% | 20% | 25% | 30% | 35% | 40% | 45% | >45% | >100% |
| Failure Rate: | 19% | 15% | 11% | 9% | 7% | 6% | 4% | 3% | 4% | 22% | 6% |
For example, 19% of the patterns failed to show price climbing at least 5% after the breakout. At the right end of the table, 22% of the patterns had gains over 45%, but just 6% more than doubled in price after the high and tight flag completed. One more example: 4% of the patterns had price climb over 40% but less than or equal to 45%. That describes the third box on the right, lower row.
The following analysis pertains to the flag portion of the high and tight flag. The flag occurs after the flagpole and before the breakout. The flag drop referenced in the table is how far price dropped below the breakout price and the resulting rise of patterns qualifying. The days is the width of the flag and the resulting performance.
| Flag drop | % | Samples | Days | % | Samples | |
| 0% | 17% | 105 | 0 | 18% | 488 | |
| 5% | 23% | 361 | 5 | 29% | 553 | |
| 10% | 30% | 437 | 10 | 37% | 231 | |
| 15% | 27% | 354 | 15 | 32% | 140 | |
| 20% | 30% | 225 | 20 | 19% | 107 | |
| 25% | 30% | 163 | 25 | 59% | 73 | |
| 30% | 28% | 130 | 30 | 28% | 51 | |
| 35% | 26% | 88 | 35 | 39% | 50 | |
| 40% | 21% | 79 | 40 | 20% | 30 | |
| 45% | 28% | 46 | 45 | 47% | 22 | |
| 50% | 32% | 28 | 50 | 42% | 25 | |
| 55% | 28% | 19 | 55 | 34% | 24 | |
| 60% | 16% | 5 | 60 | 24% | 31 | |
| 65% | 110% | 1 | 65 | 35% | 12 |
For example, there were 105 flags that showed price drop from 0% to 5% below the breakout price. They resulted in gains averaging 17%. There were 488 patterns that had a flag width between 0 and 5 days, and they showed post breakout gains averaging 18%.
What this table suggests is that high and tight flags with flags that retrace between 10% and 34% show the most promise. Flags that are between 10 and 29 calendar days wide also perform well. Ignore sample counts below 30 because they may be unreliable.
-- Thomas Bulkowski
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