Everything You Need To Know About Bull Flag Pattern

In this case, the https://g-markets.net/ takes a bit more time than usual, but it is not an aggressive correction lower. The price action actually moves more in a sideways fashion, but still with an overall bias lower, as the buyers consolidate their power. Finally, there is a break to the upside, which takes the price action aggressively higher. Once the trade is executed, you should put your initial stop loss right below the lowest point of the flag as shown on the image (S/L 1).

They are called bull flags because the pattern resembles a flag on a pole. The pole is the result of a vertical rise in a stock and the flag results from a period of consolidation. The flag can be a horizontal rectangle but is also often angled down away from the prevailing trend. Another variant is called a bullish pennant, in which the consolidation takes the form of a symmetrical triangle.

How to identify the bull flag chart pattern

Do not infer or assume that any securities, sectors or markets described in this article were or will be profitable. Past performance is no guarantee of future results. Historical or hypothetical performance results are presented for illustrative purposes only. If a bull flag is accurate, it will signal the continuation of an existing bull trend and the price will rise once the pattern completes. A bullish flag appears like an upright flag on a price chart, with a rectangular price pattern marking the flag itself. Joey Fundora has 17+ years of experience as an independent stock trader, specializing in discretionary swing trading through technical analysis.

Now, inside this trading range we’ve drawn, you’ll see the “current” day we are wanting to trade inside the blue oval. Within that range, a bull flag begins to form mid-day, right at the middle of the trading range. Let’s examine the AMC example above with a little more detail.

Then, market makers will try to “shake” you out of your position to take your liquidity (the shares that you bought/are about to buy). The Flag pattern is mainly known as a continuation pattern for trading momentum assets. However, it is important to understand that not all Flags are equal, and before you trade that pattern, you might want to get familiar with its important nuances of it. As soon as, you spot a very high relative trading volume at the flagpole, wait for the consolidation phase. This consolidation or pullback should not retrace more than 50% of the flagpole.

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Advantages and disadvantages of bull flag pattern

The main idea is to trade in the overall trend direction and never against it. A trader should place an order above the resistance when the breakout occurs. Traders can use the bullish flag pattern to identify potential trend continuation opportunities by entering a long position after the breakout. However, traders should exercise caution and wait for confirmation of the breakout to reduce the risk of false breakouts. Additionally, traders should use other technical indicators and market trends to confirm their trading decisions. The bull flag pattern is advantageous when accurately spotted.

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The bull/bear flag pattern is a continuation of a trend. Therefore, when you’re looking for one, make sure you find it at the beginning/middle of the trend and not when the trend is too extended. Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Spot Gold and Silver contracts are not subject to regulation under the U.S. Contracts for Difference are not available for US residents.

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It’s the main trading strategy of the bull flag pattern. When the price consolidates, the Volume indicator is expected to decrease as bulls aren’t strong anymore. Simultaneously, the upward breakout of the flag’s resistance will signal the strength of bulls, so the trading volumes should increase. The protective stop loss is generally placed below the lower Flag “boarder” or below the bottom of the consolidation zone. A break below the flag will automatically invalidate the bullish flag pattern structure.

With this swing high, we drew a counter-trendline to outline the top of the bull flag. Buy when a candlestick closes above the counter-trendline. Based on these principles, I’ve designed a set of guidelines to find bull flags systematically. So you might be confused when searching for trading examples to learn more about bull flags. Learn the exact chart patterns you need to know to find opportunities in the markets.

Ascending Triangle Chart Pattern: Definition, How to Trade it

It can be used by investors to identify price patterns. A bull is an investor who invests in a security expecting the price will rise. Discover what bullish investors look for in stocks and other assets. There are many options for protecting this type of trade with a stop loss.

The bull pattern is a key element of many trading strategies. It’s helpful as a sign of the trend continuation and a tool that provides entry and limit levels. It’s not a coincidence that the bullish flag pattern resembles a national flag after all; the name was inspired by the similarities with the national flag. If the price makes a breakout without forming a retest, then trade the breakout of the flag pattern. The ending point of the pasted trend line signals a level where we should consider taking our profits off the table.

This article will discuss what a bull flag chart pattern tells you, how to read and spot it, and the differences between a bull vs. bear flag chart pattern. Many security price forecasters use technical analysis, sometimes referred to as charting. However, they opt to reject the efficient markets hypothesis altogether.

It measures the vertical size of the bull flag trading strategy contained within the channel marked in blue. The second target is marked with the purple arrows and the purple line on the chart. The first target of a confirmed Flag pattern can be derived using the measured move technique. The measured move target is a distance equal to the size of the flag.

If you spot a flag with contracting price action, you may have a pennant instead. The below chart highlights an upside breakout from a bull flag pattern, which is accompanied by a high-volume bar. The high volume confirms the breakout and suggests a greater validity and sustainability to the move higher. Traders of a bear flag might wait for the price to break below the support of the consolidation to find short entry into the market.

This means the range of the candles are more bearish than usual and they tend to close near the lows. The “tighter” the range, the likely the market will breakout higher. This means the range of the candles are more bullish than usual and they tend to close near the highs. Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice.