Bull Flag Trading Pattern Explained

Typically, the flag portion of the bullish flag pattern doesn’t move perfectly horizontally. It frequently pulls back from the high point of the flag pole. If this is the case, buying a pullback can boost the trade’s potential profitability. This is the opposite of a bear flag pattern, which focuses on downtrends. As a general rule, breakouts are most effective when accompanied by an uptick in traded volumes. The bull flag pattern is named such because of its appearance.

Then, during the flag formation, we get the pullback on lower volume and tighter range red candles. Lastly, the trend resumes as volume/demand returns and price breaks to a new 30-minute candle high. After a period of consolidation, the flag must resume the upward trend in order https://g-markets.net/ to be considered a bullish flag pattern. Otherwise, the pattern fails, which we’ll discuss later in the post. This resumption should be accompanied by the presence of renewed volume (demand). In this article, we’re going to dive into the fine details of the bull flag patterns.

The Bull Flag Pattern — Pros and Cons

Finally, I suggest using a tight trailing stop loss such as the 20-period moving average. Again, you must be already familiar when it comes to plotting support and resistance. That’s why I suggest taking your profits below the next area of resistance you’ve plotted on the chart. At this point, you should be a pro at plotting support and resistance. In this case, you want to use the 50-period moving average as your trailing stop loss.

• The shape of the flag is not as important as the underlying psychology behind the pattern.
• CF International Inc.’s price chart is a great example of a really tight flag.
• There are times a Bull Flag Pattern can form when the market is in range, at Resistance.
• A buy signal is generated when the price breaks the upper trend line.

The flagpole is the initial upward price movement that occurs before the consolidation period. The steeper the rise, the more significant the bullish trend may be. With a bull flag chart, traders see a strong rally in the stock price. That’s followed by a period of consolidation where some traders sell and others start to buy. In a bull flag formation, traders will hope to see high or increasing volume into the flagpole (trend which precedes the flag).

Stop-loss Level

The breakout suggests the trend which preceded its formation is now being continued. During this period of consolidation, volume should dry up through its formation and resolve to push higher on the breakout. The actual price formation of the bull flag resembles that of a flag on a pole hence its namesake. Bull Flags are one of the most well known & easily recognized chart patterns. After the straight run upward price starts to Zig Zag between two converging trendlines forming… Spotting Bull Flags on charts requires a keen eye for patterns and a familiarity with technical analysis tools.

First, let’s examine the bigger picture trade idea in the simulator. Notice how on this 30-minute chart, AMC has been mostly range-bound for a few days, bouncing between support and resistance. Nonetheless, for a pennant pattern to be bullish, you want it to have similar characteristics to a bull flag with regard to volume. The only real difference is that the pattern will be creating higher lows and lower highs into the apex. As you can see from the image above, the context is everything when comparing a bull flag to a bear flag. That being said, they are both very similar and should be treated almost identically, just in different trending contexts.

How to screen for bullish and bearish flag patterns in ChartMill?

As a result, the AUD performed well against most other currencies in part because it offers a higher rate of return owing to its interest rate. Hence, traders have a fundamental back drop to support the technical picture for additional strength in AUD. A bull flag trading bullish flag pattern creates a downward sloping channel formed by a series of lower highs and lower lows. In contrast, a bullish pennant is a retracement pattern that creates a triangular shape that is formed by a series of lower highs and higher lows.

• The bull flag pattern is a popular chart pattern used in technical analysis to identify a potential continuation of a bullish trend.
• Chart patterns are great ways to anticipate reversals of trends.
• The bullish flag pattern derives its name from its appearance on a price chart, which resembles a flag pole with a flag extending from it, angled slightly downward.
• It includes three peaks with troughs between them and can be followed by a significant breakdown.
• A bullish pennant formation also follows a steep rise in the underlying asset price but may have converging trendlines when consolidating.

Implementing tight stop-loss orders and continually monitoring price action can help mitigate losses in case of false breakouts. Creating a comprehensive trading plan is essential for consistent success in Bull Flag trading. The plan should outline entry and exit strategies, profit targets, risk management rules, and guidelines for evaluating market conditions.

Origin of bullish flag pattern

However, once the stock has had a chance to pull back and consolidate, the bull flag should produce a breakout, allowing the stock to resume its prior momentum. In other words, there are more traders willing to buy the flag than sell it. A bull flag must have orderly characteristics to be considered a bull flag. There must be a series of lower highs and lower lows within the bull flag consolidation. A lower volume signature should accompany the price action within the flag.

Trading with the market is aimed at minimizing risks and making a buy trade at a better price during the breakout of the resistance line. Let’s evaluate how much the initial rally of the price lasted before the downward consolidation. This means that we set bull flag profit target 70 points from the point of a bullish pennant of the upper border of the consolidation. You will have to confirm the bull flag trading plan by this higher timeframe analysis technique. This is the difficult part of a trade setup for beginner and intermediate traders.

Bull Flag Pattern Explained: How to Identify and Trade this Bullish Signal

A bear flag should resume the downtrend in a stock’s price markdown. In other words, the rally in a bear flag should be higher highs and lows with lower volume — a weak rally. Many security price forecasters use technical analysis, sometimes referred to as charting. However, they opt to reject the efficient markets hypothesis (EMH) altogether.

Many small-cap assets are prone to explosive moves upwards, and the chart might simply create a double-top at the previous flag pole. Traders should look into the local trading history of the asset to establish a price target for the trade. The resistance is the most important thing to watch on a bull flag pattern. It forms an almost straight pole, then consolidates over a period of time. In the consolidation period, the stock price might rise or fall, but only in small increments.

One of them is to have a pre-determined profit target based on length of flag pole. Give your trade more room to breathe by setting your stops a distance away from the market structure. Just look through your past trades and notice how often you got stopped out only to watch the market do a complete reversal.