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

With massive breakout patterns like my favorite, the supernova, it can be hard to get a controlled entry into the trade. Breakouts can move fast, so it can be hard to get your trade executed where you expect. Secondly, draw an upper boundary downward sloping trend line from left to right which connects the swing high points together. As we mentioned above, you want a bull flag to put in a series of lower highs so that you can buy the breakout of the most recent candle’s lower high.

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• We’ll explain what a bull flag is, many of the subtle nuances in this pattern, and how to best trade the bull flag.
• But when the stock goes up, like in the bull flagpole, the squeezed short seller purchases shares at a higher price to cut their losses.
• Look for clean charts with strong patterns that you’ve learned to recognize through hours and hours of studying.
• Traders watch for flags forming in stocks or indices showing strong uptrends.
• Identifying the bull flag pattern involves recognizing specific formation features, such as the flagpole, consolidation phase (flag), support level, price breakout, and trend continuation.
• The bull flag rises, dips, and consolidates before continuing to move up.

If you stalled candlestick pattern have a small account, holding trades forever limits your ability to take other setups. When trading a bull flag I prefer to wait for confirmation that the flag is complete. Look for clean charts with strong patterns that you’ve learned to recognize through hours and hours of studying. No other platform can alert you to breaking news and price action as quickly as StockToTrade. Is it smart to watch for breakout patterns like the bull flag?

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He became an expert in financial technology and began offering advice in online trading, investing, and Fintech to friends and family. MarketBeat keeps track of Wall Street’s top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on… Wait for the line of resistance to form, then watch for the price to break out above that line before buying. A breakout above the flat top line completes this bull flag.

What Happens After a Bull Flag Pattern Forms?

A strategic entry point maximizes profit potential since the price breakout indicates the continuation of the upward price movement. The bull flag pattern helps traders determine exit points by suggesting where to take profits or implement stop-loss orders. Strategic entry and exit points derived from the bull flag pattern help refine a trader’s overall trading tactics and reduce emotional trading. The flagpole is the initial phase of the bull flag pattern, representing a rapid and significant price increase driven by strong buying momentum.

A typical bullish flag pattern features a gentle downward slope, indicating price consolidation following a significant upward movement. Traders are optimistic during a bull flag pattern formation when the market security is breaking out on increasing buyer volume in an uptrending direction. Traders are optimistic during the pattern breakout phase as they anticipate much higher market prices and more profits for their bullish trades. While no one knows whether the market rally will continue or reverse, traders should follow price action and let the probabilities take care of the rest. While all chart patterns are susceptible to false signals and surprise moves, bullish flags are among the most reliable and effective patterns. While both bull and bear flags are continuation patterns that consolidate after a strong move, bull flags are bullish formations and bear flags are bearish.

The price chart below for America Service Group Inc. is an example of a rectangular bull flag. Also, notice the long lower tails on the candles showing clear buying every time it dips under $10. Volume has also started to pick up over the past two sessions.

A trader can make a bull flag more profitable by trading the pattern on higher timeframe price charts over the daily market charts as the longer timeframe charts have a higher win probability. The third bull flag trading step is to place a price target order for the trade. Set the price target area by calculating the length in price of the flagpole and then adding this number to the buy entry price. A bull flag entry point is when the price penetrates above the declining resistance trendline of the pattern. Watch for increasing buying volume and bullish momentum as the price rises above the resistance line.

Why It’s Called a Continuation Pattern

No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this website. The past performance of any trading system or methodology is not necessarily indicative of future results. If you search for information on how to trade bull flag patterns, you’ll notice there are differing definitions about what is and isn’t a true bull flag. One trader will tell you the flag is only a ‘real flag’ if it forms between five and 20 days. But the bull flag pattern is one of the more reliable and effective trading patterns.

That’s what I help my students do every day — scanning the market, outlining trading plans, and answering any questions that come up. Stake crypto, earn rewards and securely manage a concise guide to macroeconomics 300+ assets—all in one trusted platform. There are, of course, many different ways one could trade a bull flag and we are going to explore some variations later in this article. To establish a trading strategy, identifying below 3 key points can help.

What’s The Difference Between a Bull Flag vs Bear Flag Pattern?

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The bear flag is a countertrend consolidation in a downtrend. The bull flag is a countertrend consolidation in an uptrend. However, once volume recedes into the pullback, the bull flag will overcome the selling pressure and break this counter-trend consolidation.

Strategy 4 – Break and Retest

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money . A 2019 research study (revised 2020) called “Day Trading for a Living? ” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). Ideally, you set your stop loss where the stock price trends below the breakout point.

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• Filippo’s goal with InvestinGoal is to bring clarity to the world of providers and financial product offerings.
• Occasionally you’ll see pennants with a flat top or flat bottom.
• The resistance is the most important thing to watch on a bull flag pattern.
• This material has been prepared without considering any individual investment objectives, financial situations.

Bullish Pennant: Symmetrical Triangle

The price coiling up and rising out of the trading range sees the identification of the pattern’s breakout point and the completion of the pattern’s identity. The classic version of the abcd trading pattern is a harmonic pattern consisting of two equal legs A-B and C-D. As a day trading pattern, these two intraday swings are connected by a countertrend… This is a great lesson on managing risk and respecting your stops. Never assume that any pattern in the market will work 100% of the time.

Here are a few more examples of intraday bull flag patterns that work. Notice how each one appears clean and orderly no matter the time frame of the chart. 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.

A price breakout above the upper boundary of the flag confirms the bull flag pattern. The price breakout signals that buyers are regaining control and that bullish momentum is likely to continue. Traders look for increased trading volume accompanying the breakout, which helps reinforce the strength of the move and indicates widespread market participation. Traders target a price move equal to the length of the flagpole and anticipate further increases once the price breaks out. Price targeting helps traders set profit levels and manage risks. Stop-loss orders are commonly placed below the flag of the bullish flag pattern to protect against potential reversals.