ᑕᑐ Bull Flag Pattern: Its Types, Charts, and Trading Strategies
The stock could give a false signal in the pennant or flag, and then fail to rally again. A breakout above the flat top line completes this bull flag. A traditional bull flag has a downtrend after the initial rally. A flat top break isn’t quite the same as a classic bull flag. But there are similarities, and you can trade them the same way.
As a breakout strategy, you want to make sure that you respect your stops and analyze the price and volume well. Similarly, you want to make sure you are trading off of the correct time frame for the context of the move. The volume and demand are there for the flag pole to form. This is noticeable on the chart and the big green candles. 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.
When a bullish candlestick breaks above the consolidation of a flag, a potential breakout occurs. Ideally, you’d like to see the price continue and break above the top of the flag pole. The “bull flag” or “bullish flag pattern” is a powerful indicator for trading uptrends or topside market breakouts. A bear flag suggests that the price is likely to continue its downward movement. It typically forms during a downtrend, indicating a temporary pause or minor upward movement before the price resumes its decline.
It won’t always look the same, so expect it to vary from flag to flag. We’ve looked at a classic bull flag and bull pennant flag already. If the stock can break out of consolidation, that’s when it’s time to trade. Traders get FOMO — they want to get in on the action.
Examples of Bullish Flags
You’ll see how other members are doing it, share charts, share ideas and gain knowledge. You’ll find trading difficult if you rely on one pattern to tell the story. That’s why it’s so important to see patterns within patterns.
Master Stock Trading With Above the Green Line
The optimal place to buy a bull flag breakout is once the trend begins to shift once again in the desired direction. In this 30-minute chart example, you can see that the first candle to make a new high inside the bull flag becomes the breakout candle. 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.
- As you can see from the image above, the context is everything when comparing a bull flag to a bear flag.
- The bull flag pattern has broader significance in technical analysis as it’s an effective tool to identify potential bullish continuation signals.
- The key is to wait for confirmation of the breakout while keeping a close eye on your risk.
- My goal is to break down this useful – but kinda boring – concept in a way that’s engaging and helps improve your trading skills.
- The bull flagpole forms when there’s a big upward movement in price.
In this case, one can buy above the 38% level and get in on the prevailing uptrend. Before acting on any bullish pattern, ensure that the overall market trend aligns bull flag trading with the pattern’s signal. Use indicators like moving averages to confirm an uptrend.
The Descending Triangle Pattern: Definition and Examples
Now since this is a trend reversal strategy, you’d want to look for downtrends. That’s why I suggest taking your profits below the next area of resistance you’ve plotted on the chart. The entry trigger rules are the same for the strategies that I’m about to show you because entries only play a small part in the equation. Let me share the entry trigger rule with you because this is the same rule that we will use on all three strategies.
How to Use Bull Chart Patterns in Your Trading Strategy
- Learning to recognize a bull flag pattern on a chart is a skill you develop over time.
- In comparison to a bull flag pennant consolidates longer so the bull pennant flag may be more suited for swing traders while flags more suited for day traders.
- The bull flag rises, dips, and consolidates before continuing to move up.
- Use candlestick patterns like bullish engulfing or strong green candles to confirm the breakout.
If you can identify key levels on a chart where shorts could be underwater, then see a bull flag form, it could be indicative of a coming squeeze. We discuss this strategy in detail in our post on liquidity traps. A double top pattern is shaped like an ‘M’ and is bearish. A bull flag pattern is shaped like a flag and is bullish.
These alert signals go along with our stock watch lists. Our watch lists and alert signals are great for your trading education and learning experience. Before deciding to make a trade, it’s crucial to identify and confirm the pattern accurately. Candlesticks are a way to gauge the way traders feel about a stock. We may be scattered worldwide and don’t know each other; however, candlesticks tell us how we all feel about a security.
Although we are going to explore other bull flag trading strategies later in this article, I want to introduce a more objective trading approach at this point. The first step when it comes to finding bull flags is making sure that the instrument is in a trending market environment. The strong impulsive trend wave in the screenshot below confirms that the instrument is indeed overall in a trending market. Being able to properly identify these components of a bull flag will help traders spot this pattern as it forms. It also prepares you to take advantage of the expected bull flag breakout when it occurs. By the end, you’ll have a solid grasp of how to trade bull flags.