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The (psychological) origin of a flag

EUREX:GG2!   Euro Bund
536 5 37
The Theory of flags
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What happens then?

For example the flag gets triggered on the upper side (Break of the resistance):

With every tick above the illustrated resistance, the shorties are getting more and more cold feets because their positions will suffer a loss with every uptick. Traders who are flat up to this time think about going into the market with stop-buy orders, a tick above this level. (Break-out traders) Furthermore the shorties who have to cover their positions turn to buyers and strengthen the asks. The result of it is a strong upmove, a classical shortsqueeze.

Example:


Capture the FLAG – good luck
Reply
So much to the theory. But what really happens with such a formation above all @ the flag edges?
One must make clear for it to himself how market participants operate and think
I try to illustrate this Market Psychology with the help of an example:
1. After the strong move and the first consolidation, the traded underlying rises once more to the former High, which now can perhaps be seen as a potential resistance.
2. At this level ( yellow “1”), the shorties lie in wait to fix that level because when the price dropped once at this level it could happen over again. Technically, they likely install their stop loss orders a tick above this level. They exspect falling prices, their probably take profit is the former Low
The traders who tried a longposition at the upper side with the first BIG MOVE are thinking: “Oh, my position went direct into the loss after opening. If the price reaches this entry-level again I will cover my position.
3. When the price dropp