So, a bull flag pattern is characterized by an initial sharp rally and then by a period of consolidation. With most bull flag patterns, the volume increases when the pole is being formed, then drops during the period of consolidation. Though the following breakout does not always feature a high surge in volume, an increase in volume can show that there has been an influx of new buyers. A bull flag chart pattern is seen when a stock is in a strong uptrend. First, there’s a strong move up, resulting in bullish candlesticks forming the pole. It’s a beautiful pattern that excites momentum traders around the world.
- An advantage of the bull flag is that it suggests particular profit targets and allows for the setting of a tight stop loss, as explained below.
- The tight bull flag setup provides a very limited downside risk and usually produces strong returns when successful.
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It can be a simple way to enter on breakouts with lower risk. A bull flag fails or is invalidated once it breaks the low of the breakout candle. This sounds very simple, but it takes a trained eye to really see the quality of the bull flag.
How Do Bull Flag Patterns Work?
In this case, you want to use the 50-period moving average as your trailing stop loss. Now, what you want is for the price to be above the 50-period moving average. But for the sake of consistency, master trading one type of trend first by having trades clocked in. 2009 is committed to honest, unbiased investing education to help you become an independent investor.
The bullish flag pattern forms when the market undergoes a significant price move-up, followed by a period of consolidation. During this consolidation period, the market typically forms a flag, which resembles a rectangle or pennant. The flagpole is formed by the initial price move, and the flag forms as the market consolidate.
Historical or hypothetical performance results are presented for illustrative purposes only. The bear flag starts with a significant fall in prices, followed by a period when the price remains between 2 lines. It is thought that the bear flag suggests the price will continue to move downward once it leaves the area between the 2 lines. We will help to challenge your ideas, skills, and perceptions of the stock market. Every day people join our community and we welcome them with open arms. We are much more than just a place to learn how to trade stocks.
An advantage of the bull flag is that it suggests particular profit targets and allows for the setting of a tight stop loss, as explained below. There may be more than just a couple of retracements and recoveries with lower highs and lower lows before a breakout continuing the uptrend occurs. We have a basic stock trading course, swing trading course, 2 day trading courses, 2 options courses, 2 candlesticks courses, and broker courses to help you get started. We put all of the tools available to traders to the test and give you first-hand experience in stock trading you won’t find elsewhere. Each day we have several live streamers showing you the ropes, and talking the community though the action.
A high-volume breakout is a suggestion that the direction in which the breakout occurred, is more likely to be sustained. In this case, the consolidation 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. Overall, both are bullish patterns that facilitate an extension of the uptrend. The third variation of the bull flag pattern is the bull pennant.
What is a bull flag?
Each bull flag was merely a resting period for this stock as it gathered strength to break out and trend higher. Remember that no matter how good you get at reading bull and bear flag patterns, there are times when the trade will just not work out. That being said, a sound and well-executed strategy based on the identification of flag patterns with proper risk management will benefit your portfolio in the long run. If you’re not confident about applying bull and bear flag patterns to real-world trades just yet, Phemex offers a fantastic paper trading platform that you can use to hone your skills. Even when the formation of a flag pattern is obvious, there is no guarantee that the price will move in the expected direction. This is especially true of the cryptocurrency market, which is much more volatile and unpredictable than traditional asset markets.
How To Trade a Bull Flag Chart Pattern?
Now, the first thing you need to do is to spot a downtrend and wait for the price to break its trend line resistance. Once the filter has been applied, traders can then view the results on a chart interface. Depending on the complexity of their search criteria, several stocks may meet the criteria.
Bullish or bearish flag patterns are short-term trends that may last from one to six weeks. If a bull flag pattern is correctly spotted, it will indicate the continuation of a bull trend that already exists, and the price will increase after the pattern is finished. Cantel Medical Corp.’s price chart is an example that appears to have broken out from a bull flag pattern. The top of the flag was clearly defined near the $15 area and CMN was able to close above that level. While CMN could enter another parabolic rise, often a stock will come back to test the breakout area a few sessions later, offering a second entry.
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When this happens, a pattern known as a bullish flag is usually formed. In other cases, a pattern identified as a bullish pennant can happen. The bull flag pattern closely resembles the shape of a flag on a pole. The flag can take the shape of a horizontal rectangle and is often angled in a downward position away from the trend.
The type of price action that exhibits in the pullback is what separates the Flag Pattern from a normal pullback. As you can see, the stock was on a strong bull run, when it made a major gap on 31st July 2018. Most importantly, you need to ensure that the retracement does not go atr trailing stop deeper than 50%. If this happens, it could be a sign thar a new trend is coming up. You should use a Fibonacci retracement tool to identify the retracement level. This could be because of a major news event like better earnings forecast or a rate hike by the Federal Reserve.
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Finviz enables quick and easy bull flag scanning and charting. Traders should set the approximate target stop loss level in a bull flag at the point above the breakout of the bull flag. The exact percentage stop loss depends on the price target expectations and the timeframe. This bull flag chart has been autodetected using TradingView’s pattern recognition algorithms. As defined in The Encyclopedia of Chart Patterns, a loose flag does not have an incredibly high/steep flag pole, and the flag is not tight; it is loose.
What are the risks of trading a bull flag?
An indication of interest to purchase securities involves no obligation or commitment of any kind. As with any pattern, there are advantages and disadvantages. One advantage is that it might give an accurate prediction, and a disadvantage is it might give how to buy dash an inaccurate prediction. More specific disadvantage to the bull flag is that even if your trade does eventually work out in your favor, it might take a long time to come to fruition. Identifying the bull flag pattern doesn’t have to be complicated.
A bull flag pattern is a technical analysis term that resembles a flag. It is considered a bullish flag pattern because it generally forms during an uptrend. The “flag” part of the pattern forms when the price consolidates sideways after a sharp rally. This consolidation usually takes the form of a small rectangle. Traders of bull and bear flag patterns might hope to see the breakout accompanied by a high-volume bar. A high-volume bar to accompany the breakout, suggests a strong force in the move which shifts the price out of consolidation and into a renewed trend.
Most flag patterns slope in the opposite direction from the previous trend, but some can be horizontal and resemble a rectangle pattern. If the price breaks out of a range, then wait for a Bull Flag Pattern to form. The day trader books Bull Flag Pattern usually appears in a strong trending market, or just after it breaks out of a range. Well, it’s a term I coined when the market breaks out of a range and then does a pullback for the first time.
And after the fakeout, it fizzled out and cracked under the stop. While conditions weren’t perfect for this setup, we’ve seen similar stocks have massive short squeezes recently. Your exit target is the length of the flagpole added to the bottom of the flag. In our simulator here at TradingSim, you can practice trading Bitcoin with BTC futures. It is a great way to get your feet wet and test your strategies without actually risking real money in Bitcoin.